As written by Chain Reaction Research, on September 6, Mars announced their new Sustainable in a Generation Plan to invest USD one billion in reducing environmental impacts focusing on climate action, water stewardship, land management and improving livelihoods – putting pressure on peers to make similar commitments.

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Mars move now greens its existing USD 10.5 billion in debt and loans owned by creditors such as Northwestern Mutual Life and Lincoln National Life Insurance. Lincoln National Corporation, owner of Lincoln National Life Insurance, recently engaged with Friends Fiduciary Corporation, a Quaker socially responsible investment manager, regarding greening its bond portfolio.

AlexanderStein / Pixabay

As shown in Figure 1 (below), Mars’ new commitment in effect begins to green Lincoln’s USD 24.4 million investment in debt issued by Mars wholly-owned subsidiary Wrigley. Mars bought Wrigley in 2008.

This means that Lincoln is the beneficial owner with Prudential, JP Morgan, and Hamilton Lane the investment managers for the private placement of the USD 24.4 million debt.

Description Rating % Outstanding Bonds Held
Wrigley 2.4% 10/21/18 A- 3.64% $20,000,000
Wrigley 2.9% 10/21/19 A- 0.4% $3,000,000
Wrigley 3.375% 10/21/20 A- 0.16% $1,425,000
Total $24,425,000

Figure 1: Lincoln National Corporation’s Mars bond ownership September 7, 2017. Source: Bloomberg.

Mars’ new carbon reduction goal is to reduce the total GHG emissions across their value chain 27 percent by 2025 and 67 percent by 2050 (from 2015 levels) to keep the planet from warming beyond two degrees Celsius.

As reported by Bloomberg, shown in Figure 2 (below), Mars’ new annualized carbon reduction goal is ranked tenth amongst its peers. Mars now joins both Kellogg and General Mills in including supply-chain related emissions in its 67 percent emissions reduction goal by 2050. Mars also stated it wants to achieve net zero emissions from direct operations by 2040.

Figure 2: Food peers’ annualized carbon reduction goals. Source: Bloomberg / Greg Elders.

CEO Grant F. Reid September 6, 2017 said business needs to lead "transformational change" in order to tackle the most urgent threats facing the planet and its people. Reid continued:

"If we are to help deliver on the targets agreed in Paris and the UN Sustainable Development Goals, there has to be a huge step change. While many companies have been working on being more sustainable, the current level of progress is nowhere near enough."

"Mars has been in business for four generations and intends to be for the next four generations. The only way that will happen is if we do things differently to ensure that the planet is healthy and all people in our extended supply chains have the opportunity to thrive. We must work together, because the engine of global business – its supply chain – is broken, and requires transformational, cross-industry collaboration to fix it."

Mars is a family-owned USD 35 billion business with operations in 80 countries with 85,000 employees producing some of the leading food brands globally. They also produce pet supplies and provide veterinary health services. 

Mars Commitment Includes Agriculture Supply Chains

Mars’ commitment includes separate beef, cocoa, palm oil, pulp and paper, and soy policies. As shown in Figure 3 (below), these policies apply to 100 percent of these raw materials sourced by Mars. The company also has similar human rights and labor commitments.

Supply Chain Key Policies
Beef
  • 2016: Mapped Brazil beef supply chains
  • 2017: 100 percent of Brazilian suppliers in compliance with forest code and not associated with primary forest clearance in the Amazon Biome.
Cocoa
  • 2009: Commitment to 100% certified cocoa by 2020
  • 2012: Leading buyer of certified cocoa at 90,000 tons
Palm oil
  • 2014: 100% RSPO mass balance and made NDPE commitment
  • 2015: Transparency sourcing required by suppliers
Pulp and paper
  • 2016: 100% virgin pulp and paper packaging traceable to country of origin
  • 2020: 100% pulp and paper-based packaging from certified, verified or recycled sources
Soy
  • 2016: Finalize soy supply chain map in Brazil
  • 2017: 100% of Brazilian soy certified and from farms in compliance with Brazil Forest Code

Figure 3: Mars’ key supply chain policies

Now that Mars has made these policies, their implementation may need to be assessed to ensure achievement.

Will Mars’ Debt Now Be Considered Green?

While Mars is privately held, the financial impacts from the company’s September 6 announcement include:

  • Publicly-traded suppliers’ revenue at risk if they do not meet Mars’ criteria
  • Positive impact on Mars’ and its wholly-owned subsidiary Wrigley’s debt and loan pricing given that these loans and debt may be labeled green if funds finance its Sustainable in a Generation Plan

As shown in Figure 4 (below), Mars has USD 12.5 billion in debt and loans outstanding split between itself and its wholly-owned subsidiary.

Company Security Coupon Maturity Amount (USD millions)
Mars Revolver unsecured Floating 12/31/2049  $4,000
Mars Term loan unsecured Floating 12/31/2049  $1,000
Wrigley Term loan unsecured LIBOR +112.5 10/16/2018  $2,150
Wrigley Revolver unsecured LIBOR +112.5 10/16/2018  $500
Wrigley Unsecured bond 2% 10/20/2017  $400
Wrigley Unsecured bond 2.4% 10/21/2018  $550
Wrigley Unsecured bond 2.9% 10/21/2019  $750
Wrigley Unsecured bond 3.375% 10/21/2020  $900
Total (USD millions)  $10,250

Figure 4: Mars debt and loans outstanding

Mars’ creditors may experience price impacts on Mars’ outstanding debt and loans. As shown in Figure 5 (below), Mars key creditors are globally recognized asset managers and asset owners, many of whom have green finance commitments.

Northwestern Mutual Life Capital Research and Management Janus Capital Management
Massachusetts Financial Prudential Financial Principal Life Insurance
State Farm Life Insurance Columbia Management Allstate Insurance
Capital Research Global BlackRock Fund Advisors IDS Property Casualty Insurance
John Hancock Life Insurance Capital World Investors Lincoln National Life Insurance

Figure 5: Mars’ key creditors

Mars’ Sustainable in a Generation Plan announcement may mean that its debt and loans described above may now be considered “green loans” and “green bonds”. There are currently globally USD 200 billion in green bonds outstanding and possibly USD 130 billion in green bonds may be issued globally in 2017. Since Mars’ debt and loans may finance a portion of the company’s USD 1 billion Sustainable in a Generation Plan commitment, these creditors may find that their debt and loans migrate from brown to green. Meanwhile, at the same time, it is expected that Mars’ commitment will mitigate deforestation in its supply chain.

Finally, September 5, HSBC reported that in developed markets green bonds are trading closer to benchmarks than regular debt issued by the same company as investor demand in the secondary market increases prices.

Mars now has an opportunity to lower its funding costs and improve the liquidity of its debt if Mars decides to also green its capital structure. By spending time and effort – as Mars is doing setting its new sustainability goals – greening it capital structure, the company can increase investor demand by greening its debt and loans via ring-fencing its debt or loans to fund its USD 1 billion Sustainable in a Generation Plan. Increasing demand would decrease Mars’ cost of funds resulting in more capital available to fund deeper long-term value additive sustainability achievements while increasing their competitive position versus their peers.