(Bloomberg) – A tobacco giant – practically the definition of a company shunned by socially conscious investors – wants to take advantage of the expansion of sustainable finance.
Philip Morris International on Friday unveiled the plan to issue debt, with a promise to be less dependent on cigarette sales.
When issuing bonds or borrowing linked to environmental, social and governance criteria (collected under the acronym in English ESG), organizations set goals that are generally in line with the goals of sustainable development. The issuer agrees to pay a fine to creditors if it falls short of what was promised.
For Philip Morris, the goal is to reduce its cigarette business.
Philip Morris’ entry into this game is striking because many ESG-oriented investors shun the company on principle. On the other hand, the attempt by the Marlboro maker to attract these investors makes sense, given the abundance of resources.
Worldwide, businesses and governments have issued a record $652 billion this year in green or social bonds or debt tied to sustainability goals.
“As a large company, we have a big environmental and social impact, but the biggest impact comes from the product we sell and we want to show not only how the company is changing the product, but transforming our entire value chain,” said Jennifer Motles, director of sustainability by Philip Morris, in an interview.
The decision coincides with the moment when Philip Morris finalizes the purchase of Vectura Group, a British manufacturer of asthma drugs. The acquisition of a pharmaceutical company by a cigarette manufacturer raised ethical questions by health entities.
The financing project – which Philip Morris characterizes as financing linked to business transformation – includes the goal of increasing the share of non-tobacco revenue to 50% of total net revenue by 2025, coming from 23.8% in 2020. Another objective is to increase the number of markets where smoke-free products are sold from 64 to 100 in the same period.
In the race for sustainable finance, well-meaning investors fear that their money will not actually lead to the environmental or social benefits promised by issuers. This fear of so-called greenwashing may be misplaced in the bond market that finance ESG projects, according to S&P Global Ratings.
Philip Morris guarantees that it foresees a smoke-free future and has been working on alternative products, such as the IQOS device, which heats tobacco and, according to the company, will one day completely replace cigarettes.
The company also aims to earn at least $1 billion from non-nicotine products, thanks in part to the acquisition of Vectura.
“It’s not about greenwashing, it’s about what this structure can generate,” said Motles.
“My hope is that the investment community – which has incredible power to bring about change – will be better informed about what they can ask for from cigarette manufacturers. If other cigarette companies adopt the same metrics and start to publicize them transparently, we could make cigarettes obsolete and we could multiply the speed to achieve that.”
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