FedEx Plots Course to a Cleaner Transport Industry with Sustainable Finance

Dec 2nd 2021

FedEx faced an uphill battle when it said in early 2021 that it would become carbon neutral by 2040. That may seem like a long time from now for a corporation famous for express delivery and ultra-fast logistics. But consider the task: As the world’s biggest transportation and logistics company, FedEx must decarbonize operations that include more than 200,000 vehicles, 680 aircraft, and 5,000 facilities across 220 countries and territories.

Meeting such a goal will require commitment, creativity, and, of course, money.

Conventional funding vehicles like private initiatives and public sector funding don’t fit that bill, according to Hervé Duteil, Chief Sustainability Officer at BNP Paribas Americas. In particular, they can’t supply the massive amount of capital needed to address the increasing demand for sustainable mobility solutions.

FedEx must decarbonize operations that include a fleet of more than 200,000 vehicles, 680 aircraft, and 5,000 facilities across 220 countries and territories.

That’s why FedEx Corp. recently launched its first sustainable bond. The proceeds are targeted to finance a range of decarbonization and energy efficiency projects in transportation and should help propel FedEx toward a carbon-neutral future.

The Global Challenge of Making Transport Sustainable

FedEx’s size makes the company’s sustainability leadership and potential impact significant, but it’s only one player in a transport industry responsible for 24 percent of direct CO2 emissions.

“Cars, trucks, planes, and ships need to be powered as soon as possible by sustainable sources of energy such as renewables or hydrogen,” Duteil notes. The costs of that transition are steep. He says creative approaches to financing major carbon neutrality initiatives like FedEx’s will need to emerge throughout the transportation ecosystem to make a real difference.

FedEx has recognized that corporate finance is a key part of the solution. In issuing its own sustainability bond—a €600-million, 8-year maturity that’s part of a $3.25 billion multi-tranche issuance (including two in US dollars and two in euros)—FedEx joins a growing list of companies worldwide that are acknowledging the instrumental roles of corporations in general, and corporate finance in particular, in preserving the health of the planet.

Of course, financial institutions are integral players. BNP Paribas (the parent company of Bank of the West) was a joint bookrunner for the FedEx euro-denominated sustainable bonds—part of the bank’s commitment to supporting initiatives that address the climate crisis. Bank of the West has also implemented policies that restrict or prohibit the financing of environmentally harmful activities, such as fracking and Arctic drilling, and recently launched its own sustainability-linked loan offering.

Why Sustainable Bonds?

Sustainable bonds are gaining more traction for two reasons: They are attractive to investors and to company stakeholders.

“In Europe, these bonds attract both traditional and ESG investors looking for higher returns but also for impact, as they are able to know precisely how the proceeds will be used,” noted Anne van Riel, Head of Sustainable Finance Capital Markets at BNP Paribas Americas.

And for their issuers, they’re a powerful way to keep stakeholders abreast of the company’s progress towards important sustainability goals. Indeed, the International Capital Markets Association, a leading trade association based in Zurich, has established a number of principles and guidelines for defining the parameters of a sustainable bond as well as best practices to promote transparency and disclosure. The group calls for frequent impact reporting from funds—an objective seen as increasingly important to investors.

In Europe, these bonds attract both traditional and ESG investors looking for higher returns but also for impact, as they are able to know precisely how the proceeds will be used.

—Anne van Riel, Head of Sustainable Finance Capital Markets, BNP Paribas Americas

Among FedEx’s eligible use of bond proceeds are a progressive rollout of electric and other zero-emission vehicles for its commercial fleet, along with charging and fueling infrastructure and increased use of biofuels in aviation. Other projects include transforming FedEx facilities into green buildings that promote generation through renewables like on-site photovoltaic (PV) solar systems, and investments in solutions that reduce packaging waste and increase material reusability.

Momentum Grows in Sustainable Mobility

FedEx isn’t the only transportation giant trying new funding vehicles in an effort to reach sustainability targets. In fact, Duteil says the whole sector is beginning to understand the business case for sustainability and make significant efforts to reduce greenhouse gas emissions—and companies are increasingly using sustainable finance to get there. Recent examples include Daimler, Volvo, and JetBlue, which became the first airline to deploy a sustainability-linked loan (SLL).

This movement toward SLL’s can’t come fast enough, especially with a global e-commerce boom that shows no signs of slowing. The creative solutions employed by industry giants like FedEx certainly aren’t the single magic potion. But they are paving the way for a new way of doing business—one that prioritizes positive and sustainable operations for businesses as well as for the people they depend on.

This article was adapted from FedEx Delivers on Decarbonisation and Diversity Through Sustainable Finance.

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