Woolworths (ASX:WOW) share price on watch after its big green promise

Environmentally conscious investors can rejoice as the market passes judgement on the Woolworths Group Ltd (ASX: WOW) share price after …

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Environmentally conscious investors can rejoice as the market passes judgement on the Woolworths Group Ltd (ASX: WOW) share price after it announced plans to issue sustainable bonds.

Our largest supermarket chain is looking to raise €500 million ($798 million) through a bond issue that's linked to emission targets, reported the Australian Financial Review.

There's no better place to sell these bonds than in Europe – a region miles ahead when it comes to global warming issues.

Woolworth share price looking for sustainability

This is the first time that Woolworths is issuing sustainable bonds. While it sold $400 million in green bonds two years ago, the two are structured differently.

The green bonds were to fund green projects. On the other hand, the sustainable bonds will reward Woolworths for hitting pre-set emission targets with cheap debt, while punishing it with penalty payments if it doesn't.

The capital from the sustainable bonds is to help fund recent acquisitions. Woolworths bought majority stakes in data analytics firm Quantium and PFD Food Services, reported the AFR.

Cutting emissions is good for the Woolworths share price

There are two scopes to the target (areas where the reduction in carbon emissions will come from). The first is from Woolworth's own business. The second is from its supply chain.

Installing solar panels on their buildings and sourcing green energy is one way for the company to reduce its scope one emissions. Installing more energy efficient lights and equipment at its stores is another.

Meanwhile, ensuring that distribution centres and suppliers have energy saving initiatives will help Woolworths meet its goal.

Emission targets to trigger Woolies rewards

The target is to cut emissions by 63% compared to its 2015 levels by 2030. This should please most ESG conscious investors as this is modelled to meet the Paris Agreement. The agreement is to limit global warming to well below 2 degrees Celsius (preferably to 1.5 degrees Celsius).

The Woolworth share price closed at $40.54 on Tuesday and is up 28% over the past year.

Foolish takeaway

While this is the first time that Woolworths is using such a bond, other companies on the S&P/ASX 200 Index (Index:^AXJO) have issued similar bonds. These include engineering group Worley Ltd (ASX: WOR) and retail conglomerate Wesfarmers Ltd (ASX: WES).

Sensible Aussies will want to see more ASX 200 shares use this funding mechanism too. While many Australian companies have set ambitious targets, some experts warn that these companies won't be able to meet the targets.

It's no point making grand statements about reducing emissions unless there's better accountability. Sustainable bonds are one way for investors to dangle a carrot while holding a stick.

What would also be great if management and board bonuses are also tied to emission goals – not just profit targets.

Motley Fool contributor Brendon Lau owns shares of WorleyParsons Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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