Johnson Controls Issues $500M Sustainability-Linked Bond, Interest Tied to Operational and Customer Emissions Reductions
Buildings efficiency, controls, and automation company Johnson Controls announced the completion of its inaugural $500 million Sustainability-Linked Bond offering, tying its borrowing costs on the ten-year senior notes to the company’s achievement of its goals to reduce its own greenhouse gas (GHG) emissions, as well as customer emissions.
The issue follows the recent publication by the company of its new green, social, and sustainability-linked finance framework. The new framework prior Green Finance Framework, expanding the range of sustainable finance options for the company to include Green, Sustainability, and Sustainability-Linked Bonds and Loans.
Johnson Controls issued its first $625 million green bond last year under the prior framework, and announced today that it has completed the allocation of the proceeds from the offering, with investments focused on projects aimed at driving energy efficiency, both internally and for its customers.
According to Johnson Controls, the announcement makes Johnson Controls the first S&P500 industrial company to publish both an integrated sustainable finance framework and issue a sustainability-linked bond.
George Oliver, chairman and CEO, Johnson Controls, said:
“Experts say that an additional $1-2 trillion/year must be invested in sustainability and cutting greenhouse gases if we are going to have any chance of meeting the steep carbon reductions science tells us is urgently required. Governments alone will not be able to mobilize this sum of money, so private sector capital needs to get sustainable, and fast. Building the market for sustainable finance is therefore an imperative; and ensuring that the highest standards are met so that dollars flow to projects that truly accelerate decarbonization, is also critical. With our continued commitment to sustainable finance and aggressive sustainability targets, we are showing our leadership in the field.”
Earlier this year, Johnson Controls announced a series of sustainability goals, including commitments to reduce operational emissions by 55% and customers’ emissions by 16% by 2030. The new sustainability-linked bond has its interest rate tied to the company’s new interim 2025 emissions reduction targets of 35% for Scope 1 and 2, and 5% for Scope 3, meaning that the company’s borrowing costs will increase if the goals are not met.
Katie McGinty, vice president & chief sustainability, government and regulatory affairs officer at Johnson Controls, added:
“This is further demonstration that Johnson Controls is taking a lead in the zero emissions buildings space. Slashing carbon emissions from buildings is critical in tackling climate change, since they represent 40 percent of all greenhouse gas emissions and analyses show that 30 percent and more of green finance proceeds go to sustainable buildings projects. Johnson Controls OpenBlue digital platform and services for optimizing buildings can drive improvements of 50 percent and more in energy efficiency to deliver corresponding reductions carbon emissions.
The yield to maturity for the sustainability-linked notes was 2.091%, which is the sum of the benchmark 10-year treasury rate of 1.321% + 77 bps of credit spread.