Diving brief:
- Sprouts Farmers Market has closed a $700 million revolving line of credit linked to its ability to meet targets related to its sustainability initiatives, the specialty grocery chain announced Friday.
- The retailer will incur lower borrowing costs under the loan facility if it achieves its goals of selling socially and environmentally sustainable products and its board diversity.
- Sprouts joins a growing number of companies linking their sustainability efforts to their relationships with financial institutions.
Overview of the dive:
Sprouts’ new loan facility replaces one that was “substantially similar” but lacked the sustainability-related terms that are built into the revised agreement between the grocery chain and its lenders.
According to the company, Sprouts had $418 million in credit through the loan facility when it closed on the updated terms.
The health-focused food retailer plans to rely on cash flow generated from its business to cover operating expenses and costs related to the development of new stores, but wants to have the line of credit on hand to provide it “greater flexibility financial as we grow”. “said Chip Molloy, Chief Financial Officer of Sprouts, in a statement.
Under the terms of the credit facility, Sprouts will see its borrowing costs drop if it is able to generate sales of sustainable products that exceed a predefined level and pay more interest and fees if it fails. fail to achieve this goal, according to a Form 8-K the company filed with the Securities and Exchange Commission on Friday. The rate will not change if sales of these items by Sprouts meet the threshold.
Sprouts will also receive an interest rate reduction if the number of its directors who “identify as gender or ethnically diverse” exceeds a predefined threshold for a given prior fiscal year, according to the securities filing. The interest rate will remain the same if it does not exceed the threshold and will increase if it does not reach the target. Fees will also vary based on board diversity.
The borrowing terms, known as the “Sustainability Lending Principles,” reflect guidelines issued last year by the Loan Market Association, the Asia Pacific Loan Market Association and the Loan Syndications and Trading Association, depending on the file.
Sprouts emphasized in his environmental, social and governance report for 2020, the last such report it has published, that it focuses on achieving a series of goals related to the environment and the composition of its board of directors.
Other grocers have also sought to demonstrate their commitment to sustainability by entering into credit agreements that tie borrowing costs to their ability to meet targets related to environmental or other goals that provide societal benefits.
In August, the Australian supermarket chain Coles announced that it had set up a loan agreement this is linked to its ability to reduce carbon dioxide emissions, reduce the amount of waste it sends to landfills and increase the percentage of women in leadership positions. In addition, Ahold Delhaize entered into a loan facility in December 2020 that links its costs to progress in reducing food waste, reducing carbon emissions and promoting healthy eating.
Grocers’ efforts to develop incentives tied to their sustainability initiatives come as customers say the food retail industry should step up eco-friendly initiatives. Sixty-seven percent of respondents to a survey of 1,000 U.S. consumers by Retail Insight earlier this year said retailers hasn’t done enough yet to demonstrate their commitment to the environment.
