Starbucks Corporation this week announced that it had issued a $500 million U.S. corporate bond aimed to pay for sustainable projects, including support programs for farmers in coffee growing regions. It’s a positive move that will likely benefit the Seattle-based coffee chain financially and attract millennial investors.
In issuing its first sustainability bond on Monday, Starbucks (SBUX) is also entering a niche band of high finance. Sustainability bonds are a unique kind of Environmental, Social, and Governance (ESG) financial instrument, which falls into the growing field of socially responsible investing (SRI). At the end of 2013, SRI investment stood at over $6 trillion in U.S. assets, making up about 18% of the $36.8 trillion in professionally managed assets, according to The Forum for Sustainable Investment. The consensus of academic research is that the performance of SRI strategies is in line with overall market performance. In other words, SRI investors do not sacrifice returns for investing according to their convictions.
Starbucks’ sustainability bonds positions the company to deepen its appeal to millennial consumers, as young adults aged 18 to 24 account for 40% of the firm’s sales. This age group could also be viewed as a target demographic for current and future investors in the company. According to research from the Center for Creative Leadership, millennials want to do both “good and well,” and there is going to be a tremendous generational transfer of wealth in the near future as baby boomers have just started to pass along their life savings to their heirs. The process will continue over the coming decades, and according to Accenture, some $30 trillion will be transferred from one generation to the next. Cultivating an image as a progressive firm in terms of its products and from an investment standpoint is a prudent strategy for Starbucks to be one of the companies to benefit from this coming seismic shift in wealth.
Starbucks issued senior, 10-year notes at an interest rate of 2.45%, just 0.74% higher than U.S. government debt with the same maturity. The notes are rated A- by Standard & Poor’s, in line with the company’s corporate credit rating. The issuance also aligns with the company’s efforts in the past year to help coffee farmers battle the plant fungus “coffee rust.” Last fall, Starbucks committed to plant a coffee tree for every bag of coffee purchased through the end of this year, offering up to one million rust-resistance trees for regions most impacted by the fungus.
Starbucks CFO Scott Maw indicated that the issue was significantly oversubscribed and attracted interest from a diverse group of socially conscious investors outside of its normal investor base. Given the positive response, it is highly likely that other like-minded companies will follow Starbucks’ issuance. I wouldn’t be surprised to see other innovative companies popular with millennials—like Apple (AAPL), Nike (NKE), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL)—follow suit in the near future.
For Starbucks, the new bond will help the company create more customer and investor loyalty and sell even more coffee now and in the future.
Robert R. Johnson is President and CEO of The American College of Financial Services, a nonprofit private educational institution located in Bryn Mawr, Pennsylvania.