Sustainability-Linked Bonds - A Case Study of H&M

Abstract: The thesis investigates the sustainability-linked bond issuance by fast fashion company H&M in the midst of the Covid-19 pandemic. The study contributes to existing literature by providing observations of real-world practitioners on the cost-benefit considerations of SLB issuance, in particular, challenging the notion of a "free lunch", conversely concluding that the greatest concern is attributed to potential reputational damage in the event of missed targets. Furthermore, we observe that the primary motivation for SLB issuance pertains to strengthening investor relationships and its dexterity in communicating a firm's sustainability commitments to external stakeholders which, on the other hand, acts as a double-edged sword by potentially exposing the firm to greenwashing allegations. Regarding the investor perspective, we identify a tradeoff between diversification benefits and bond verification efforts as well as a potential greenium. We also find that H&M's SLB's success was driven not only by the framework credibility and compelling KPIs, but also by the novelty of the instrument. Lastly, whilst the SLB may not have revolutionized H&M's sustainability strategy, it added urgency and alignment within the firm to its commitments.