Daily Management Review

Novartis Becomes The First To Link Sustainability Bond To A ‘Social Goal’


Novartis’ bond sale raises “1.85 billion” euro to expand malaria and leprosy treatment.

Novartis sold a bond for “1.85 billion euros” while the interest payments on the same could shoot up if the drug manufacturer does not manage to spread “medicines and programmes” accessibility for “malaria and leprosy” in various developing countries.
More and more investors are demanding the improvement in companies’ “environmental, social and governance” track record while sustainable investment becomes more popular resulting in a spur of “sustainable debt issuance year after year”. The above mentioned deal from Novatis happens to be “the third issue to date” which links “payments to creditors to company-wide sustainable development targets”.
In the later part of 2019, Enel, an Italian utility company, initiated the above mentioned structure whereby “tying interest payments to key performance indicators”. Likewise, Suzano, a paper and pulp manufacturer from Brazil, only about a week back, sold a “$750 million” bond which was linked to carbon emissions and was “heavily oversubscribed”. Reuters reported that as per a “lead manager”:
“The Swiss drugmaker received 3.25 billion euros of demand for its eight-year bond, which priced with a 0.08% yield”.
Green bonds have turned out to be the “biggest financing vehicle” to occupy the field of sustainable investment linking funds to “specific environmentally-focussed projects”, whereas “sustainability-linked bonds” have been linked with company level goals. Enel and Suzano have linked their interest payments to “climate-related goals”, while Novartis becomes the first to link to a “social goal”.
In case by 2025, Novartis fails to either of “two targets”, namely “a threefold increase in access to a number of drugs and a 50% increase in access to its programmes” for malaria and leprosy in countries with lower-middle income, it will have to pay “an additional 25 basis points in interest”. In the words of the company’s chief executive officer, Vas Narasimhan:
“Today’s announcement is another important step on our journey to integrate ESG into the core of our business, measure our progress, hold ourselves accountable, and demonstrate our dedication to making good on our promise to broaden global access to our medicines”.