Rewe aims to be a frontrunner in sustainability
Mrs. Dr. Büchel, Mr. Schischmanow, Rewe has been dealing with sustainability issues very early on. Now, sustainability is becoming part of financing. What is the idea behind this?
Büchel: Sustainability is very important to us. We were pioneers in 2008. It concerns our organization, as well as all other stakeholders, from customers and employees to suppliers and capital providers.
Schischmanow: In the capital market, there is a growing demand for linking financial instruments with sustainability goals. We are the first food retailer in Germany to issue a bond tied to sustainability goals.
Why did you choose to issue a bond linked to sustainability goals for your debut in the bond market?
Schischmanow: It signifies our serious commitment to sustainability. We are willing to bear economic consequences if we don't achieve our goals. The sustainability-linked bond is a forward-looking concept. Using the bond market as a source of financing also aims to attract new investors.
You placed the sustainability-linked bond with 145 investors. Can you break down how it is divided among different investor groups?
Schischmanow: We have a diverse mix of investors, including family offices, funds specializing in sustainability topics, regular fund investors, pension funds, and banks. I was surprised by the high volume of interest. Many investors were unfamiliar with us. The bond was oversubscribed 3.5 times, which is a very respectable result for a debutant.
Does this mean that the bond was not a one-time occurrence?
Schischmanow: In the future, this is our preferred approach. We had numerous investors asking about this specifically. For them, it was crucial because a new issuer entails a lot of effort, which is only worthwhile if greater expectations are met. Additionally, it is essential for the secondary market as well, as some investors wish to trade the bond. Moreover, we can now replace old financings through the bond market.
Is your investment need that significant?
Schischmanow: We have a medium to long-term financing strategy. Our regular investment projects now amount to around 3 billion euros annually. On the other hand, we have our revenues. But as we continue to grow, there will be refinancing needs in the future. It's not that we have one or two singular projects. We are heavily investing in warehouse infrastructure, logistics, automation, digitization, and technology.
Being a cooperative, we adopt a long-term perspective that spans decades and family generations.
Since you have linked the debut bond to sustainability goals, you cannot deviate from them subsequently.
Schischmanow: Certainly, that's our position. We strongly believe this initiative holds significant value. Sustainability has been a fundamental part of our organization for an extended period, and being a cooperative, we adopt a long-term perspective that spans decades and family generations. Consequently, we don't find it necessary to obsess over quarterly results to maintain high stock prices. Even if our financial performance isn't outstanding on occasion, we can still invest confidently if we believe it contributes to the future.
What criteria is the bond linked to?
Schischmanow: We follow the Science Based Targets Initiative (SBTi) standard. Since last year, supermarkets and Penny in Germany have been following these guidelines. The group has different climate target requirements. We are also in discussions about extending SBTi to the entire group.
Why only for Germany?
Büchel: The choice was made purely for practical reasons. Moreover, Penny and Rewe represent the largest entities in Germany, and we have a strong data foundation in this market.
What do the goals look like?
Büchel: There are definitions for Scope 1 to Scope 3 emissions. Scope 3 is differentiated into FLAG – forest, land, agriculture guidance – and Non-FLAG. For each segment, we have set goals based on the base year 2021. For Scope 1, Scope 2, and Scope 3 Non-FLAG, we aim for a 42% emission reduction by 2030, and for FLAG, a 30% reduction by 2030. Each goal is supported by a series of individual measures, starting from switching to LED lighting, using wind energy for power supply, to initiatives for equipping site roofs with photovoltaics or replacing refrigeration systems and substances.
Agriculture needs more time
What's the division of Scope-3 emissions about?
Büchel: This is a new requirement from SBTi. Scope 3 is now divided because it has been seen that agriculture is a significant factor in achieving climate goals. The transformation there will take more time, and this is now taken into account.
Do you need to break down the goals annually? Otherwise, you can't tell whether you have achieved or missed the goals.
Schischmanow: We have broken down the goals for 2028, 2029, and 2030 and will report annually on them. If we miss the goals, there is an interest rate increase of 85 basis points. But the final settlement will be made at the end. Until then, we will use the time as effectively as possible.
From the investors' perspective, what were the most important topics during the roadshow?
Schischmanow: Since many foreign investors had never heard of us before, it was initially about explaining who we are and how a cooperative structure works. How the group is managed and controlled and how the funds are used. What opportunities there are to take cash out of the group or bring it into the group. Compared to listed companies, we have the advantage that we are not dividend-driven. The majority of our earnings remain within the system.
Wide variety of investors
Does this imply that the sustainability aspect didn't have a significant impact after all?
Schischmanow: Yes, it did, definitely. But it depended heavily on the target groups. Family offices and funds that already focus heavily on such criteria questioned the goals and measures in detail. But there were also other funds that valued security more. It was a very broad spectrum.
In the past, you mainly relied on bank financing and promissory notes. Have promissory notes become too expensive given the increased interest rates?
Schischmanow: The promissory note market is very specific and largely limited to Germany. As a result, the volume is limited to some extent. If you want to broaden the financing base and become more independent, moving into the bond market is the right step. It was the right time for us now because we needed refinancing, and the timing was right with the SBTi verification concerning sustainability.
Mrs. Büchel, who is responsible for sustainability on the board, is not part of the finance team. Why do you consolidate ESG topics in the treasury?
Schischmanow: We coordinate between departments. The ESG topic in the finance sector is closely monitored by Mrs. Dr. Büchel's team. I myself lead the sustainability pillar: energy, climate, and environment. Thus, we have a good coordination and short decision-making processes. We ensure that investment needs quickly come into budget planning. Various departments work together, and even the accounting department is involved.
In close collaboration, Daniela Büchel and Telerik Schischmanow placed Rewe's first bond in September. Since the debut in the capital markets involved a bond linked to sustainability goals, a collaboration between the two board members – Schischmanow is responsible for finances, Büchel for HR and sustainability – was necessary. Both have a long-standing association with the cooperative Rewe Group and have recently joined the corporate board.
How do you integrate ESG topics into reporting?
Büchel: The responsibility for sustainability reporting falls under my jurisdiction. Historically, we managed a separate GRI report. However, the future landscape, particularly with the introduction of CSRD (Corporate Sustainability Reporting Directive), remains uncertain for everyone. It marks a significant transformation, and currently, there's a lack of clarity on how things will unfold. We are currently in the process of figuring out the organizational adjustments needed to adapt to these changes. It's certainly a challenge.
By when do you aim to achieve climate neutrality?
Büchel: We aim to achieve climate neutrality by 2050. According to SBTi guidelines, a 90% reduction is required by that time, and the remaining 10% can be neutralized through highly specific measures.
What proportion of your CO2 emissions falls under Scope 3? Typically, this is the majority.
Büchel: That's the majority. It's more than 80%. That's the real difficulty because we can only indirectly influence Scope 3. We are doing very well in Scope 1 and Scope 2. Since 2006, we have already halved our own specific greenhouse gas emissions. We can only shape Scope 3 together with suppliers. We are already setting goals with our own brand suppliers. The major brand suppliers themselves already have ambitious goals.
We have a total of 5,000 SBTi-relevant suppliers.
When buying fruits and vegetables, you presumably don't have as much power?
Büchel: Power is a tricky word in trade. We can work on many things together. It's not just about specific pesticides but, for example, also about cultivation methods. We are already vertically integrated in many things and are an active part of the supply chain. We have a total of 5,000 SBTi-relevant suppliers.
What does this mean in the end, if you struggle to achieve the goals? Will you switch to branded products because they meet the sustainability requirements?
Schischmanow: It is undoubtedly a challenge for small and medium-sized suppliers because many of them need to build the resources to fulfill all the measures and reporting requirements. But our goal is, of course, to succeed together.
Büchel: We try to get as many suppliers as possible onto the SBTi platform. This is the science-based approach supporting the 1.5-degree target. Having the numbers is important. With SBTi, we would all have the same database. Now it's about persuasion. However, regulation, such as the Supply Chain Due Diligence Act or CSRD, also sets requirements. This can be a driver for a joint approach, and we provide the platform for that. Someone needs to push it forward, and we would be happy to do that.
The action week in August at Penny, focusing on the true costs of products, went in this direction. But it has brought you not only praise but also a lot of criticism. What insights have you gained from that?
Büchel: We are still in the process of evaluating the results. We have seen that there is broad acceptance in the opinion-forming public. It is much more difficult to explain the theme at the shelf during the purchasing decision. The action was mainly intended to draw attention to the topic. It requires a lot of explanation, and no discounter can solve the problem alone. It is a societal issue that we must address in sustainability transformation.
Acceptance diminishes when the cost is considered. Everyone desires wholesome, sustainable products, yet few are willing to bear the expense.
Büchel: At least not to this extent. The price increase is significant when true expenses are taken into account, making it challenging for customers to comprehend. Given time to explain the matter, the situation appears more favorable. We are currently in discussions with agricultural associations; there have been some misunderstandings in this regard. From our perspective, the added value lies in the fact that these data contribute to a scientific study conducted by TH Nürnberg and the University of Greifswald. The results of the study could be pivotal, especially for the EU, where True Cost Accounting plays a crucial role.
Does such an action help in the discussion with farmers, or is it rather counterproductive?
Büchel: We have addressed a controversial issue – but it also leads to a conversation. We maintain close dialogue with our agricultural partners – discussing these matters as well.