TUI, a major tourism business, recently announced the offering of sustainability-linked bonds in February. The company promised investors that if they provided funds, TUI would pay them back at a competitive interest rate and achieve a stated ESG goal for reducing emissions. The target for the bonds was $318 million, but due to high demand, the total value reached $530 million. While this seems like a positive development for TUI, investors, and the environment, sustainability-linked bonds are a new instrument that has not been fully tested. Questions remain about how these goals are measured, regulated, and whether companies will be able to meet them by the deadlines set.
Sustainability-linked bonds are a newer form of investment compared to green bonds, which are more established. While green bonds are used for specific environmental and climate-related projects, sustainability-linked bonds allow companies to set their own overall targets. However, some experts are skeptical about sustainability-linked bonds, expressing concerns that the money raised may not go to green projects, and that companies could potentially backtrack on their efforts once targets are met. TUI has recently issued sustainability-linked bonds that are tied to goals for reducing greenhouse gas emissions from its airline division, with the intention of reducing emissions by at least 11% by 2026 compared to 2019 levels.
TUI has outlined methods to reduce emissions from its airline division, including the use of modern engines, implementing new technology for optimizing flights, and partnering with Sustainable Aviation Fuel producers. The company has committed to reducing Scope 3 emissions, which include emissions throughout the supply chain. Some experts question the feasibility of using Sustainable Aviation Fuel for near-term emission reductions, as current volumes are low and scalability is a challenge. TUI has stated that it will be reporting progress on its emissions reduction goals to the Science-Based Targets initiative, but the industry in general lacks a standardized system for tracking these goals and ensuring transparency.
The European Union’s Sustainable Finance Taxonomy may impact TUI’s sustainability-linked bonds, as it aims to help investors understand whether an industry or activity is environmentally sustainable. The Taxonomy sets specific criteria for aviation activities to qualify as sustainable, such as thresholds for emissions and sustainable aviation fuel usage. While TUI has not addressed concerns about the emissions from Sustainable Aviation Fuel production and scalability, investors remain optimistic about the company’s plans. It remains to be seen whether TUI will successfully meet its emission reduction targets by the set deadlines, but for now, investors view TUI as a leader in ESG and sustainability efforts.
