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Heathrow's Sustainability- Linked Bond

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By Heathrow

Shaping a more sustainable future through financing 

In 2023, we issued our first Sustainability-Linked Bond (SLB) as a demonstration of our commitment to sustainable growth by integrating the strategy in our financing practices and backing our words with our wallet. This SLB is a first of its kind for the aviation industry through the inclusion of the airports entire carbon footprint, positioning Heathrow as the exemplary standard and setting a precedent for the aviation industry.

Aviation is a force for good in the world, but its benefits cannot come at a cost to the environment. We need to cut the carbon out of flying so that future generations can still enjoy the unique benefits the industry brings. Like every other part of the global economy, aviation needs to reach net zero emissions by 2050. The SLB marks a financial commitment to this vision and highlights Heathrow’s leadership role in reaching net zero.

What exactly is a Sustainability-Linked Bond?  

A conventional bond is when investors lend us money and we promise to pay it back within a pre-agreed timeframe, with additional interest on top. Think of it like a mortgage. An SLB works in the same way but with more requirements. Not only do we have to pay the money back to our investors; we must also reach the sustainability goals stipulated in the bond agreement. If we do not meet the goals, we pay a penalty – or additional interest – on the bond. 

The SLB tracks our two Heathrow 2.0 carbon reduction goals: reducing carbon emissions by 15% 'in the air' and by 46.2% 'on the ground' by 2030, using 2019 as our baseline year and reference point for peak carbon going forwards. This mechanism is particularly progressive as it incorporates Scope 3 emissions from aircraft – including emissions in the air which represent over 95% of the carbon footprint at the airport and are largely outside of our direct operational control. As the first airport to include a KPI that covers scope 3 emissions from aircraft, we are setting a new industry standard and taking our ability to influence seriously. Working with our partners, we are committed to addressing the complete carbon footprint associated with our airport activities, including that of airlines.  

We do not see the SLB as solely a financial instrument. It is a strategic move to weave sustainability into the very fabric of how we finance our operations and hold ourselves accountable.

What is in it for us?

In an era where Environmental, Social, and Governance (ESG) criteria significantly influence investment decisions, our Sustainability-Linked Bond is a testament to our commitment to sustainable growth and positions us as a leader in sustainable financing in the aviation sector. 

By taking the lead in integrating sustainability into our financing practices, we aim to pave the way for a more responsible and environmentally conscious aviation industry. 

Why do investors care? 

For investors, our SLB offers an opportunity to support a company that has not only sound investment credentials but is also committed to positive environmental change and responsible business practices. The SLB also provides a gateway for us to be considered by a more diverse range of investors. For example, this trade will attract investors who are increasingly selective and require strong ESG credentials. This will open avenues for future investment opportunities.

For the trade to be a success, Heathrow needed to ensure that the trade would follow exemplary standard credentials, particularly given the reputational risks associated with greenwashing. The key to unlocking this exemplary standard was to demonstrate alignment with the Science Based Targets initiative - Heathrow was the first major airport to achieve this using the 1.5-degree standard.

The three-times oversubscribed order book for the €650 million 10-year bond reflects investor confidence in our pioneering approach. The bond provides a gateway for us to inspire other airports to follow in our footsteps and integrate sustainability into their financial strategies, and we are happy to support them in doing so.