Norway's SalMar swims into thriving green bond market

6 min read
Eleanor Duncan

SalMar, one of the world's largest salmon producers, is looking to join the ranks of fish farmers which are burnishing their sustainability credentials by issuing green bonds.

The Norwegian company is marketing its debut green bond, which will be a €250m-equivalent 5.75-year deal either in euros or Norwegian kroner. Calls with investors will kick off on April 12 via lead managers and green bond advisors Danske Bank, DNB Markets and Nordea.

The deal will make SalMar only the third borrower in the aquaculture sector to issue a green bond, according to IFR data. It follows fellow Norwegian seafood producers Mowi and Grieg Seafood.

Proceeds from the bond will help fund SalMar's investments in green projects, including sustainable fish farms, sustainable smolt (juvenile salmon) production and to develop new technologies for offshore fish farming.

The aquaculture industry faces three main limitations on salmon farming sustainability: physical limitations (where to put the farms), lice infestations and feed.

"We are actively taking steps to reduce our environmental impact, with measures and routines across the entire value chain," said Hakon Husby, head of investor relations at SalMar.

"SalMar intends to secure long-term profitability and growth by operating all aspects of our fish farming and processing activities in a sustainable manner. By setting up a green bond, SalMar aims to mobilise debt capital to further promote the transition towards a low carbon and environmental sustainable society."

The carbon footprint of farmed salmon is around 80% lower than that of beef, slightly lower than pork but higher than chicken, according to climate research institution Cicero, which scored SalMar's green bond framework a 'medium green'.

Soy problems

Aquafeed is the main drag on fish farmers' ESG credentials, said analysts at UK-based non-profit think tank Planet Tracker.

As fish protein prices have soared, in part because of overfishing, soy has replaced fishmeal as the primary protein source in aquafeed. Fish food accounts for salmon producers' largest operating costs and 80% of its impact on land and at sea, according to Planet Tracker.

"With the feed, many salmon producers made the switch to soy because it is cheaper and reduces pressure on small feeder fish stocks," said Archie Cage, research associate at Planet Tracker. "But it came with unintended consequences, including deforestation in the supply chain. But companies are now looking into alternatives including insect meal and algae."

Most soy used in salmon farming is imported from Brazil, where its cultivation is linked to mass deforestation.

"Investors may want to note that one of SalMar's feed suppliers, Cargill Aqua Nutrition, is owned by the US company Cargill," wrote Cicero analysts in their second opinion on SalMar's green bond framework.

"While Cargill Aqua Nutrition sources its soy from suppliers that have committed to become deforestation-free, Cargill has not made the same commitment. To the contrary, it has been accused of massive deforestation, among other things, and been named 'the worst company in the world' by the environmental NGO Mighty Earth."

In its green bond framework, published last year, competitor Grieg Seafood said that it would exclude Cargill Aqua Nutrition from the bond's use of proceeds until the parent company significantly reduced its soy-related deforestation risk in Brazil.

SalMar's Husby said that proceeds from the company's green bond will only be allocated to capex projects - and not to operating expenditure projects, meaning that the bond will not be funding feed procurement.

All of SalMar's feed is certified to be deforestation free - but the company has still taken the step of contacting feed suppliers to know more about their total exposure to deforestation risk practices in all of their business operations, he said.

The company's feed is certified according to ProTerra, a not-for-profit organization that advances and promotes sustainability at all levels of the feed and food production system.

While ProTerra's scheme, which ensures that the feed is not grown on land that has been converted from native vegetation after 2008, has relatively strict criteria, it has some weaknesses on transparency, said Cicero analysts.

"Certification is not seen as a complete safeguard against deforestation risk," said Cicero.

"We believe that the best way to end deforestation is to engage with our suppliers to ensure that we are sourcing deforestation and conversion-free soy and soy protein concentrate for the feeds that we buy," said Husby. "Whilst we are working with Cargill, we also expect them to change their business in Brazil - business as usual is not acceptable to us. We have made this expectation clear to the senior leadership of Cargill."

A spokesperson from Cargill said: "[Cargill] is firmly committed to eliminating deforestation - including legal conversion - from our supply chains and are accelerating our efforts to reach that commitment".

More ESG, more profit?

One of the main, or most effective, arguments for companies to improve their ESG credentials is the impact that poor environmental practices have on profit, said Cage.

"For salmon farming, there is an obvious connection between the environmental impact and financial performance: more intensive salmon farming undercuts environmental conditions at farms, which then impacts the ability to grow salmon there," he said. "There's a feedback loop between sustainability and performance."

Cage sees green bonds as a good way to bring accountability to companies - but also a good way of finding ways to mitigate companies' environmental impact in a cost-effective manner.

Nordic Credit Rating has assigned SalMar a first-time long-term issuer rating of A- with a stable outlook.

"The credit rating reflects SalMar's strong profitability relative to its peer group, which is due to its cost-efficient production and excellent farming locations," wrote analysts. "The rating further reflects the company's strong cashflow and moderate financial leverage."