With Brazil’s Bemol, ESG bonds reach the Amazon

RIO DE JANEIRO, BRAZIL – Bonds tied to sustainability targets have reached the Amazon. Bemol, the largest retail chain in Brazil’s Northern region, has debuted in the debt market with the issuance of a R$200 (US$40) million sustainability-linked bond (SLB).

The retailer’s goal is to secure the B Corporation stamp by January 2024, a certification awarded to businesses that place social and environmental impact at the core of their strategies. Bemol had proposed the certification last year and intended to complete the process between 2022 and 2023.

The 5-year debentures (with a 2-year grace period), at a rate of CDI plus 2.1% per year, were entirely underwritten by Bradesco, which structured the operation.

Should the company fail to meet its commitment within the agreed term, it will suffer a 25 basis point increase in the interest rate, which will then reach 2.35% per year.

The funding represents a substantial change in Bemol’s debt history, which has a very conservative financial profile and until now used to raise credit in the tens of millions.

The leap in debt has a specific purpose: the resources will be used as funding to grant credit to the retailer’s clients, key to its expansion strategy in the western Amazon.

“We are becoming a fintech and needed a larger volume of financing than usual,” says Bemol’s CEO Denis Minev.

He says the network was evaluating the option of structuring a receivables fund (FIDC) to raise funding, but the cost of CDI plus 7% per year was much higher than the SLB offered by Bradesco, the company’s main banking partner.

The operation relied on a second opinion from Sitawi Consulting, which considered the chosen indicator adequate for the bond to be considered an SLB.

According to the consultancy’s report, last year Bemol conducted its first evaluation for the B certification and achieved a provisional score of 77.3 points, out of a possible total of 200. The minimum score to qualify for the stamp is 80 points (the average score of Brazilian certified companies is 97.3 points).

To reach the minimum score, Bemol set some priorities, considered essential within its line of business, such as implementing reverse logistics and waste collection programs, integrating local entrepreneurs into its e-store, aligning policies with its suppliers, encouraging the caboclo culture and developing diversity and inclusion initiatives.