Carlsberg Group has set higher sustainability goals and also raised its 2022 profit outlook, but achieving both might prove to be challenging. Green finance could help fund the investments needed to achieve its sustainability goals as an economic headwind weighs and a faltering post-COVID recovery necessitates cost cuts.
Carlsberg (CPH:CARL-B)now targets net zero carbon emissions across its entire value chain by 2040. It also aims to produce 100% of all raw materials via regenerative practices by 2040, and improve its water usage in water-stressed locations.
Unabated inflation, and the looming threat of recession will necessitate further cost cuts, which may weigh on the share price. Cost cuts may also restrict the funding needed to invest in innovation to drive its raised sustainability targets.
Carlsberg has not yet tapped the green bond, or sustainability credit market, but following issuances by some of its major peers it could raise much needed funds that would focus more on its sustainability journey, and less on its financials.
Despite an announced of a raised profit outlook, Carlsberg’s report was not rewarded by the market, largely due to speculation that its performance could not be sustained. Sales volumes continue to face pressure from the war in Ukraine, and slowing consumption, while costs have risen due to supply chain issues and inflation.
Beer sales in Europe were down 8% in 2021 from pre-pandemic levels, but were down 35% from sales in bars and restaurants, based on industry statistics. The industry believes it can recover further, but would require government backing to do so.
Brewers begin to tap green bonds and sustainability markets
Carlsberg’s recently launched sustainability plan ‘Together Towards Zero and Beyond’ (TTZAB), builds on previous targets set in 2017. The company has been making progress on a number of its ESG targets and its possible that there may be an appetite for its actions amongst providers of green finance.
AB InBev (BR:ABI), subsidiary Budweiser APAC (HK:1876), and Asahi drinks parent Asahi-Kasei (JKT:3407) have all raised funds in the green, social, sustainability and sustainability-linked (GSSS) market, paving the way for others to follow. Raising funds in this market is on the rise, and requires the establishment of a sound sustainability framework.
Ab Inbev’s $10.1 billion sustainability linked revolving credit facility signed in 2021 was the first in the industry. Budweiser followed in its parents’ footsteps with a $500 million SL facility of its own in the same year. Use of proceeds from Asahi’s ¥10.0 billion green bond renovated 2 hydroelectric plants.
Carlsberg was among the first in the industry in Europe to begin disclosing its sustainability footprint, and would have little trouble devising a sustainability framework that met the market requirements. It also expects to report alignment with EU taxonomy in 2023, once updated objectives have been published by the EU.
European brewers like Carlsberg face a tough economic outlook but could take advantage of the popularity of sustainable financing to invest in innovations to drive sustainability. With sustainability often comes efficiencies, new potential markets and even new customers.