The sustainability movement is nothing new in many sectors, though it may be up for debate in the jewelry industry where the motives seem less rooted in the environment and more in the economy. Pandora A/S, a Danish jewelry manufacturing company that began as a simple family-run business 41 years ago is now offering a sustainability-linked bond to target eco-minded creditors to ultimately avoid the climbing bank rates of 2023. The company aims to use 100% recycled gold and silver materials by 2025 through this initiative.
The $531 million sustainability-linked bond has a five-year maturity rate with targets to reduce emissions and transition the company into recyclable materials. Along with these two aims, the company also wants to prevent scrutiny over superficial “greenwashing,” while reducing its reliance on bank loans.
Borrowing rates continue to climb globally as inflation spikes with increased economic uncertainty. The two figures increase hand-in-hand. While The Federal Reserve may take actions (like increased interest rates) to attempt to control inflation by the end of 2023, most predict that we will see similar, if not higher, figures by the end of the year.
Naturally, Pandora wants to lessen its reliance on bank loans to avoid suffering losses associated with the current economy. At the same time, the jewelry corporation wants to diversify how it receives its funding, given that it has reached the “size and strength” where it’s become “natural” to seek additional financing sources, according to Anders Boyer, the company’s chief financial officer.
The sale’s proceeds will go toward basic corporate needs, including debt refinancing and expansion. Pandora plans to create 100 new retail jeweler locations this coming year.
Pandora’s year-to-date stock is currently up 36%. Between the initial price conversation and the final term decision, the mid-swap spread tightened by approximately 30 basis points, with investor orders reaching over $2.2 billion.
Again, this begs the question: Is this really about environmental sustainability or economic sustainability? Balancing between both could be the new trend for jewelers and other industries relying on precious metals. In fact, the trend is already sweeping across the Middle East, Africa, and Europe.
“It’s been reported now that the largest diamond mines are running out,” Bartrum, the founder of a minimalist jewelry brand focused on circulatory jewelry explains. “And yet, diamonds are some of the most versatile stones, that’s why they’re easy to reuse for generations. Bringing circularity to the jewelry industry is the future of the industry.”
Supply shortages aren’t just occurring with diamonds. After the 2020 COVID-19 pandemic, many industries had to adjust to severe labor shortages, extreme price spikes, and transport restrictions that reduced production across gold and silver mines. Nearly all the materials required to make the most popular types of jewelry are increasingly less accessible.
The practice of financial sustainability extends well beyond the jewelry industry, though. Multiple financial institutions have created net-zero targets for 2050 with the ultimate aim of aligning investment and lending portfolios with no “emissions.”
Such responsible spending can provide rippling effects throughout the economy that may decrease the climbing inflation and interest rates with the decreased borrowed funds. These financial institutions even offer “carbon trackers” that help people monitor their spending emissions.
Another popular form of sustainability in the economy is “sustainable supply chain finance,” which only supplies loans to borrowers with appropriate environmental and social governance. Typically, lenders look at credit histories, economic performance, debt-to-income ratios, and other black-and-white figures, though this tactic considers more well-rounded social aspects of how the borrower will impact the economy and environment after receiving the funds. Pandora may have had this angle in mind when developing its new strategy.
“Pandora has set out to become a low-carbon and circular business,” Boyer explains. “This type of loan connects the company’s capital structure to our sustainability agenda and creates a very clear incentive for us to reach our targets. It also confirms the financial community’s appreciation of our sustainability strategy.”
If more major jewelers take similar steps as Pandora, precious metals may see a dip in demand from the jewelry sector, though analysts already expect this to occur. Jewelry demand typically falls during poor economic periods with investment demand rising as fewer consumers have the funds for extravagant purchases since they focus on asset protection. Essentially, this announcement from Pandora should not have any major rippling effects on precious metals demand or prices in the coming year.
As always, investors should speak with their financial advisors before making any portfolio decisions.