Mowi's Green Bond

ISIN

NO0003054108

Currency

Euro

Issue Date

31st Janurary 2020

Maturity Date

31st January 2025

Optionality

Callable at 101.12 from 31st Jan 2023 up to but before 31st Jan 2024

Callable at 100.56 from 31st Jan 2024 up to but before maturity

Change Of Control Put Option

Coupon

Floating rate 3 month Euribor +1.60

Rank

Senior Unsecured

Issue Size

200 Million

SPO Verified

Cicero

Wild-caught fish

Investments and expenditures related to the sourcing and production of sustainable feed. These are to comply with Mowi’s policy on sustainable salmon feed and require that 100% deforestation-free soy be used (i.e., soy that is certified by ProTerra or another certification scheme with equivalent requirements, guaranteeing the segregation of certified and non-certified soy).

Continued overfishing of wild fish could lead to a disruption of the aquatic food chain and consequently, biodiversity loss. Over-reliance on fishmeal could also impact a company’s profitability; given that fishmeal prices are affected by climate and weather patterns (e.g., El Niño).

FAIRR believes that the company should invest in more radical feed alternatives beyond sustainable soy and fishmeal. Many alternative feed ingredients may disrupt the aquaculture industry. They present huge growth potential for feed manufacturers and also opportunities for producers like Mowi to improve the sustainability impacts of feed production. Thai Union’s partnership with Calysta, for example, shows commercial success in alternative feed innovation, with shrimp being fed on feed produced from natural gas. Sustainable feed reduces wider biodiversity impacts such as deforestation and the depletion of wild fish stocks.  Other examples include algal innovations, single-cell proteins and insect proteins. Please see FAIRR’s Shallow Returns report for a full in-depth analysis of the various feed innovations.

Soy

Soy cultivation can have damaging environmental impacts such as deforestation, soil degradation and nutrient and water pollution. Purchasing certified soy is a measure readily adopted by protein producers to mitigate risks. However, there are supply constraints and rising cost pressures given that the total volume of certified soy is unknown. In 2013, only 2-3% of soy was certified and there is a lack of evidence to suggest that this volume has grown. Producers like Mowi will be exposed to financial risk if its reliance on certified soy continues.

Topic

Bond proceeds

Issue

Recommendation

Fish escapes

Investments to protect, restore and enhance ecosystems and biodiversity such as escape prevention (e.g., sensor technology) and the reduction of microplastics.

Fish escapes threaten the wild fish gene pool and damage a company’s profit margin through production losses and regulatory fines. Given the company’s history of escape events, greater focus must be given to developing specific methods to prevent escapes.

The company should invest in robust farm infrastructure and technology. In Norway, there are national standards that stipulate technical requirements on the dimension, design, installation and operations of floating fish farming systems. Currently, it is unclear whether Mowi applies these standards throughout its global operations, though we strongly recommend that producers adopt the same stringent criteria across all locations.

Sea lice

Investments in fish welfare, including sea lice management and the prevention and reduction of medicine and antibiotic use.

Sea lice are Mowi’s biggest challenge. In 2018, the company was found to have sea lice counts in its Chilean operations, which exceeded the national lice limit and cost the company US$9.8 million in mass mortalities. Proceeds should, therefore, address specific methods to prevent and manage sea lice outbreaks without compromising fish welfare. In the past, the industry has relied heavily on veterinary treatments (including the use of ‘SLICE®’) that have either negative impacts on the ecosystem or contribute to antibiotic resistance. Mechanical treatments, where fish are flushed with high-pressure water currents to remove lice, also negatively impact the health and welfare of fish.

FAIRR recommends that Mowi focuses on investing in non-medicinal sea lice solutions that circumvent the negative environmental and health impacts. Methods can include the use of wrasse, anti-sea lice functional feed, snorkels and laser technology. We also suggest greater transparency in the company’s progress reporting by disclosing success rates per tool and geography.

Disease

It is important that animal protein producers address other diseases such as pancreatic disease, gill disease or infectious salmon anaemia (ISA), which are also financially material. Disease outbreaks may restrict exports to several countries including China, one of Norway’s fastest-growing export markets.

Mowi should disclose specific measures to prevent and manage all diseases. Poor management could cut the value of exports and lead to market bans, all of which will undermine the company’s balance sheet and trade relations.

Certification

Investments and expenditures related to fish farms that are certified, or in preparation to become certified, by the Aquaculture Stewardship Council (ASC) salmon standard, using feed in accordance with Mowi’s policy on sustainable salmon feed.

Whilst the ASC has the strictest requirements on environmental impact, disease and transparency, as benchmarked by the Global Sustainable Seafood Initiative, it is not holistically robust. For example, on escape management, the ASC is the most lenient when compared to GLOBAL G.A.P and GAA. Furthermore, ASC certification covers a broad range of topics and it is not clear whether this investment will bring any additional sustainability benefit.

Seeking to obtain ASC certification throughout the supply chain is an effective means of signalling to stakeholders that sustainability standards are being managed. The documentation, however, is not clear. It does not explicitly state that proceeds will be used to improve sustainability performance and processes to meet the ASC’s certification criteria. Secondly, as ASC certification covers a broad range of sustainability topics, it is not clear which areas Mowi will be prioritising. We recommend that Mowi provides further detail on how proceeds will be used in relation to certification.

Algal blooms

The green bond framework underlying the bond issue does not address algal blooms.

In May 2019, the Norwegian salmon industry suffered the worst algal bloom in 30 years, which amounted to losses of $90 million and led to the death of 7.5 million salmon across all Norwegian salmon farms. As rising temperatures are a contributing factor to the growth of harmful bloom-forming algae, the material impact on fish mortality will exponentially increase. Mowi, however, fails to disclose how it plans to manage algal blooms.

FAIRR recognises that a widely established method to monitor and address algal blooms has not yet been developed. Algal blooms are a holistic issue exacerbated by climate risks leading to poor water quality and thereby, gill disease. We recommend that Mowi uses proceeds for R&D to advance algal bloom monitoring and management, and to report on algal bloom management processes.

Sustainable Feed

The volume of certified sustainably sourced and produced feed

More specific alternative KPI: Volume of the specific ingredient (soy, fishmeal, fish oil) that is certified by a certification scheme (e.g., ProTerra)

GHG emissions savings relative to comparable products (tonnes per year)

More specific alternative KPI: Mowi should disclose GHG emissions on a product-by-product basis rather than solely by overall savings to increase the transparency of product-specific emissions.

Sustainable Fish Farms

Reduced fish escapes (%)

It is not clear whether this KPI refers to the reduction of escape events or the number of fish escapees. Mowi should continue to disclose figures in both its sustainability and impact reports.

% of sites with minimum benthic impact

We recognise this as a good KPI. Mowi’s sustainability report discloses the % of sites with minimum benthic impact in accordance with national seabed quality standards for different locations.Mowi should also disclose the metrics used to measure organic and inorganic loading.

Research and Development

Type of project and issue addressed

Insofar as it is commercially viable, Mowi should disclose the specifics of its projects to increase the confidence of investors and demonstrate ongoing progress (e.g., the extent to which the project has addressed the issue).

Environmental management & fish welfare

Reduction in sea lice medicine use (e.g., active ingredient per tonne produced)

More specific alternative KPI: a breakdown of the specific sea lice medicines used.

Reduction in antibiotic use (e.g., active ingredient per tonne produced)

Mowi should distinguish antibiotic usage by type (e.g., whether the antibiotics are CIA or MIA).

Type of project and issue addressed

Insofar as is commercially viable, Mowi should disclose the specifics of its projects to increase the confidence of investors and demonstrate ongoing progress (e.g., the extent to which the project has addressed the issue).

Sustainable feed

What sustainable feed innovations is Mowi going to explore? What are the environmental or nutritional advantages/disadvantages of these innovations?

Biodiversity Loss

How will Mowi upgrade its infrastructure across all sites to prevent escapes?

In which technologies will Mowi invest to prevent future escapes?

Disease management

How will Mowi deduce the effectiveness of non-medicinal tools?

What specific measures is Mowi undertaking to prevent or manage disease?

Algal blooms

Which measures will Mowi take to manage and address algal blooms?

Certification

What types of improvements relating to certification will be funded by the proceeds? How will proceeds be used at farms that are already certified?

Science-Based Target

Has Mowi considered strengthening its Science-Based Target from a target well below 2C to a 1.5C target?

What is the implementation plan to achieve this target? How will Mowi address emissions from feed farming?

Climate-related scenario analysis

Does Mowi plan to conduct a climate-related scenario analysis, publicly disclose the results and how it directly influences its strategy?

Sustainable protein

How does Mowi view the alternative protein market: as an opportunity or a risk?

Has Mowi planned to diversify its product portfolio to encompass alternative proteins?

Geographic coverage

How will proceeds be allocated across geographies?

Has Mowi identified which areas are most at risk of escape events or mortality from disease?