Sustainability has been climbing up the retail industry’s agenda for years and a raft of recent financing deals shows it has now well and truly taken centre stage.

Once seen by some as nice to have, green and ethical credentials are increasingly front of mind for bankers and investors.  

When hard-nosed financiers’ funding decisions are shaped – in part at least – by recipients’ sustainability commitments, issues such as climate change move ever more from being slogans on Extinction Rebellion’s placards to the top of the board agenda.

That is exactly what’s happening. This week, fashion retailer Joules revealed updated funding arrangements with Barclays Bank, which include a £25m revolving credit facility and £9m term loan, the interest on which is linked to sustainability targets including carbon emissions and employee engagement.

In other words, standard business financing is being provided on terms that reward corporate responsibility. It’s a long way from the metrics that might have applied in the past, even though many retailers’ commitments to environmental, social and governance (ESG) standards are not new.

Joules’ chief financial officer Marc Dench tells me that the new funding arrangements followed a “meeting of minds”. As Joules was discussing the renewal of its facilities in the normal run of business, it became evident that linking the arrangement to ESG objectives could align with the bank’s priorities as well as the retailer’s.

It may be no surprise that Joules, which has its origins in the tabletop stalls run by founder Tom Joule at country fairs, describes its sustainability commitments as “central to our business purposes”.

“Those for whom environmental concerns may not yet be so central should wake up and smell the sustainable rainforest-certified coffee. Otherwise, they face being left behind in the tide of change already sweeping through business”

But others, for whom such concerns may not yet be so central, should wake up and smell the sustainable rainforest-certified coffee. Otherwise, they face being left behind in the tide of change already sweeping through business and only likely to grow in the run-up to the COP26 climate conference later this year. 

While consumers sometimes say one thing and do another when it comes to shopping sustainably – and generally want retailers to do the right thing on their behalf while not being charged for it – finance houses and investors are increasingly walking the talk as they link a more eco- and ethics-conscious worldview with decisions about where to put their money.

That is prompting companies to change. This week, online star Boohoo, which has faced slave labour allegations and environmental questions over the past year, put its agenda for change and strengthening of corporate governance at the top of the operational highlights section of its full-year results. It was a sign that Boohoo, to its credit, has at least read the room, even if it still has work to do. 

Eco moves

Money is following retailers that are seen to do the right thing. The trend can be seen internationally as well as in the UK and some of the biggest names in the industry are raising finance on that basis.

Natura, the Brazilian giant that owns businesses including The Body Shop, this week raised $1bn (£720m) through sustainability-linked bonds, which will be used to refinance existing debt. 

In February, Swedish fashion colossus H&M issued a €500m (£434m) bond of the same sort – it was almost eight times oversubscribed. Its chief financial officer Adam Karlsson described the move as “an important step in our work to optimise the company’s capital structure, while at the same time providing investors with an opportunity to contribute to positive transformation of the fashion industry”.

“Last week Tesco became the first UK retailer to offer sustainability linked supply chain finance to its partners”

Similar initiatives are underway throughout the wider industry. Tesco, for instance, last week became the first UK retailer to offer sustainability-linked supply chain finance to its partners. The scheme, in partnership with Santander, provides Tesco suppliers with preferential financing rates to encourage them to commit to “science-based emissions reduction targets”.

And M&S, which is relaunching its pioneering Plan A sustainability programme, has simultaneously created an ESG board sub-committee to oversee the programme across the business.

Retailers today need to have as good a handle on their environmental P&L as they do on their financial one. Otherwise, they risk bearing a higher cost of credit as green becomes the colour of money in new ways.