Walmart joins the green bond party with $2 billion deal

Walmart just raised the largest green bond ever in the U.S. corporate bond market.

Why it matters: The $2 billion bond deal illustrates that U.S. investors’ interest in green bonds is not going anywhere. Companies are tapping into that demand, and putting money behind efforts to battle climate change.

• Funds raised from green bonds are meant to be used for environmental projects. But they can run the risk of “greenwashing” as there are no real penalties for not following through on commitments.

Driving the news: Walmart said it would put the funds toward projects including renewable energy, high-performance buildings, sustainable transportation and zero waste/circular economy initiatives.

State of play: Though the potential for greenwashing is always a concern, Walmart has a concrete sustainability plan, including being carbon neutral by 2040 and reducing emissions in its supply chain, Shawn Keegan, credit portfolio manager at AllianceBernstein, tells Axios.

• "Walmart has a lot of influence and control over its supply chain. That's important, and it gets other retailers to think about their supply chains," Keegan says.

The intrigue: Walmart’s green capital didn’t come any cheaper than the rest of its bonds, based on their maturity and comparable Treasury benchmark.

• Nowadays green bonds save companies an estimated 0.04% annually on average compared with their regular bonds, down from about 0.10% for green bonds placed at the beginning of the year, notes Matt Lawton, portfolio manager at T. Rowe Price. Some green bonds, like Walmart's, don't have a discernible pricing advantage.

Be smart: Besides the potential for savings, the rationale for issuing green bonds is just as much about companies signaling to the market and investors that they're taking sustainability seriously, says Keegan.

The big picture: Walmart's deal is important for the green bond sector because until now, most deals have largely been concentrated in just three industries: real estate, utilities and autos, Lawton says.

• More sector representation means more diversification for investors.
• "My hope is that others will follow their lead, and we'll see a more diverse set of issuers coming to the market. I think that's ultimately what we need to see for [the green bond market] to be successful," Lawton adds.

Zoom out: Global issuance of sustainable debt, which includes green, social and sustainability bonds, reached $1.7 trillion as of the end of 2020, according to the Climate Bonds Initiative, which helps certify these types of bonds.

• Green bonds specifically reached $1.1 trillion in 2020, which is a fraction of the overall fixed income market. 

What to watch: Walmart says this is just the beginning of its foray into green bonds.

Go deeper: Amazon's climate goals take root in Brazil