BARLOWORLD: Africa’s First Gender-Linked Bonds Pioneered by Barloworld

For leading industrial processing, distribution, and services company Barloworld, its 120^th anniversary is not a time to look back but a preparative year, forward focussed, as it takes action rarely seen before to drive culture change internally.

Over the years, the company has achieved significant transformation milestones, but now further progress has been cemented in place as Barloworld commits to diversification and change within its leadership team and procurement spend.

On August 23, the company issued two gender-linked bonds on the Johannesburg Stock Exchange (JSE) with the goal of increasing the participation of women in the company’s structure and operations.

As part of a wider Environmental, Social, and Governance (ESG) scheme, this focus on female involvement has been warmly welcomed by the majority with many applauding Barloworld for innovation and leadership in advancing gender equity.

“Our view is that it takes deliberate action to be able to achieve targets and contribute positively beyond our operations,” says Group Finance Director, Nopasika Lila. “If we don’t do so, it will not happen.”

By selling three- and five-year bonds on the JSE’s Sustainability Segment, Barloworld aimed to raise just under R1 billion. These funds would be used to fuel the company’s female empowerment initiatives, measured against overarching targets of achieving 50% representation at leadership level by 2025 and commitment of 15% of spend with suppliers to black-women owned businesses.

A NO BRAINER

Lila – who joined Barloworld in 2019 having previously led the Eskom Pension and Provident Fund, and has held Board seats at enX, Nampak, and Basil Read – explains that whilst the concept behind the bond issuance is very simple, the mechanics and performance measurements were slightly more complicated.

“When you issue a vanilla bond you go to markets and ask for money for a specific purpose. In this case our ask was somewhat nuanced. We were clear that the funds we are seeking will be used to ensure that we progress and grow in the areas that the general economy, as well as the business of Barloworld, has been challenged with. We wanted to actively contribute to our ESG agenda. Specifically, we said if it is women-focussed, then we need to have clear KPIs as everything would need to be measured,” she says, adding that reduced interest rates were negotiated as an added benefit to the achievement of the agreed targets and KPIs.

“If the agreed bond rates were at, say, 6% and we would achieve leadership of 50% female by 2025 – reviewed progressively – we would get a discount on the agreed rate – that is how we get the benefits.

“We also want to be deliberate to how we approach women-owned business in our supply chain. We ensure that 15% our procurement spend goes to women-led businesses. As we progress and do business, we now must hold true to those commitments and it will become our normal.”

The concept came from a discussion between two successful female leaders – Lila and Relebohile Malahleha, Barloworld’s Executive: Strategic Finance, and Treasury.

“Relebohile asked me one day why we couldn’t consider a gender-linked bond that could really give us a mark in terms of contribution towards our ESG targets. We started thinking about what it could look like, and how we could position and package it to the market,” Lila remembers.

“We started engaging more on it during the year, and it became a no brainer. We put a lot of thought into it and we knew we had to position it appropriately so that it makes sense to investors who were at the time not familiar with the Gender Linked Bond Framework and Principles.

“We have had immense support from our Group CEO, Dominic Sewela and our Board to bring this whole idea to life,” she adds.

GOING TO PLAN

The success of this initiative has been felt far and wide. Internally, Barloworld was thrilled to overachieve on its target with the bonds being oversubscribed. Externally, there is a clear appetite in the market to support such programmes, and for other organisations this paves the way for ongoing ESG success with Barloworld setting the example.

Since the establishment of the JSE’s Sustainability Segment in 2020, more than R26 billion market capitalisation has been mobilised. This ESG-focussed segment perfectly feeds into the ethos of high-performance culture at Barloworld.

“ESG is integrated in our strategy, integrated everywhere in our business,” states Lila.

“That makes it easier for us as it is something that we have been living as Barloworld. We see it every day and we have live examples. At Board level we have already achieved 55% female representation and at Executive Committee level we have 44% so we are getting there. It makes it real for everyone when you live by these examples.”

As the first of its kind, this Gender Linked Bond has been closely watched by all in the industry, keen to understand whether there would be attainment of the commitments. With the significant demand for the bond, and questions from other businesses on how to structure similar packages, Lila is confident the concept has been well-received.

“It has gone to plan,” she smiles. “Financiers have capital and sometimes they want to invest in something that is different. This may have been more complex but it is simple to understand. The ability to put forward our measurement criteria and then see things measured through the year, it makes it easy to comprehend.

“We had to answer questions about what would happen if we didn’t achieve the targets. The upside was clear for when we do hit targets, but some investors wanted to know about the downside would be. It works both ways; investors will get the benefit of an increased rate should we not achieve on the committed targets.”

Valdene Reddy, Director of Capital Markets at the JSE was excited by the offering, hoping that more companies would follow. “I am thrilled that this listing happened in August, which in our country’s calendar is designated as Women’s Month. I am hopeful that the listing of this first-ever gender bond will encourage more companies to come to the JSE to list instruments that aim to close gender inequality,” she said.

NEXT: EUROPE?

As interest and appetite around Barloworld’s concept spreads, there have been proposals from Europe for the company to consider a similar bond for European investors. The Luxembourg Stock Exchange requested an engagement with Barloworld, with the goal of eventually issuing a second gender-linked bond.

“That works perfectly for Barloworld because we operate in various countries and jurisdictions across Africa, Russia and Mongolia, and such funds would be utilised in our dollar-based businesses.

“We have received a lot of calls from companies in South Africa and aboard asking us to come and talk to them about the gender-linked bond. We certainly feel there will be a lot to come out of this.”

According to the World Economic Forum’s Global Gender Gap Report 2022, the world needs another 132 years to close the gap – multiple crises outbreaks have slowed progress and, in some circumstances, reversed gains. There is a real risk that positivity will be eroded without a constant focus – globally – on this vital issue.

At Barloworld, transformative growth is entrenched beyond discussion. Action is being taken with much being accomplished. These stories are necessary to display what is possible when affirmative decisions are driven.

“ESG has been with us for a long time. My first experience with ESG was more than 20 years ago. It was spoken about as a concept, with no action or follow through,” says Lila.

South Africa ranks in the top 20 of 156 countries in its performance on gender parity, but its performance in terms of economic participation and opportunity sees it rank outside the top 90. More needs to be done and ESG will be an essential lever in this change.

“My share to young women is that it is not enough to be a woman, the expectation is that they also need to perform and excel in all that they do. When that is instilled in the minds of young people, they know they must work hard.

“We are creating a very solid foundation for young people to want to associate with Barloworld. We are represented across the world in different businesses, so there is room for people to develop,” she says.

ESG, KPI, BBS

“Our ESG success certainly filters through the business. Incidentally, we have a small group head office, with most Barloworld employees sitting at the operational level. it is therefore essential from a leadership perspective that these achievements filter into those divisions as that is essential for our targets being met,” says Lila

“Our KPI’s are in some ways linked to our earnings. This is tracked through the Barloworld Business System (BBS) which ensures that leader’s KPIs are embedded in their scorecards. Our entire organisation is aware of the fact that if KPI’s are not met this ultimately impacts the bottom line.”

Going forward, ESG strategies will continue to drive the direction of Barloworld as management embeds sustainability at the heart of operations.

“ESG stands out for us,” confirms Lila. “We are looking at a number of opportunities in this space. Barloworld has been around for 120 years. For us to remain relevant and continue to exist the next 120 years, we need to be conscious and ensure we contribute positively towards ESG matters.

“When we look at wealth creation for our shareholders, it is a long-term matter. We must look at long-term implications of our actions today so that shareholders are able to maximise going forward.”

With the organisation’s next set of results due soon, the Group Finance Director is confident that the focus on ESG and delivery of concepts like the gender-linked bond will result in a strong ethos of attainment.

“We are looking forward to issuing our results. We aspire to be an organisation that instils high performance through our BBS culture. The fact that we have women leading these businesses means that high-performance continues,” Lila concludes.