As companies struggle to find the capital needed to pursue and achieve their environmental targets, Norfolk Southern Corp. (NYSE: NSC) on Wednesday closed a $500 million green bond offering. Norfolk Southern called itself “the first Class I railroad in North America to issue green bonds” in the announcement.
The point of green bonds is to raise capital for projects and transitions that make companies operate more sustainably or reduce emissions. Investors, in turn, can have confidence that their money is supporting sustainable progress.
“It allows us to go out and finance projects at a little bit lower interest rate, so there’s a benefit for Norfolk Southern from a financial standpoint and a benefit for the investors as they’re able to put their money in a safe investment with a good return,” Josh Raglin, chief sustainability officer at Norfolk Southern, told FreightWaves.
Green bonds to support locomotive modernization and intermodal network
Though nothing has been decided yet, Raglin predicted the “vast majority of the funds” will go toward modernizing the company’s locomotive fleet. Norfolk Southern is working to convert 600 older DC locomotives into more reliable AC locomotives, which have more pulling power, by the end of 2022. According to Raglin, over 90% of the company’s emissions come from locomotive diesel, so anything it can do to improve fuel efficiency makes a difference.
Another large portion of the green bonds will likely fund expansions in Norfolk Southern’s intermodal terminal network, Raglin said. He noted that the company shipped about 4 million intermodal units last year and is hoping to increase that number. The green bond funding could also go toward renewable energy, traffic-alleviating technology, more efficient facilities, waste-minimization and recycling programs, environmental restoration projects and other emission-reduction projects.
Why green bonds?
Rail is a “very capital-intensive” industry, so the company issues bonds to fund certain capital-intensive projects, Raglin said. Norfolk Southern was approached by some of its banks in the last year about the huge market for green bonds. He said the company received three and a half times more demand for its green bonds than the amount it wanted to issue, “which just goes to show you the demand in the marketplace right now.”
Many investors, customers and employees are calling for sustainable progress. “Green bonds will enable us to deliver for our customers and the environment,” James Squires, chairman, president and CEO at Norfolk Southern, said in the release.
When freight companies such as Norfolk Southern reduce their emissions, it also lowers the supply chain emissions for its customers. As more companies strive to reduce their carbon footprints and include scope 3 emissions along the supply chain, implementing emission-reduction strategies such as those funded by green bonds will become increasingly important.
Norfolk Southern will publish an annual green bond report on its website, which will include how much funding was allocated for each green project and how many bonds are still outstanding, Raglin said. The information will also be audited by a third party.
Norfolk Southern’s science-based emissions target
This announcement comes after Norfolk Southern committed to establishing a science-based target to reduce emissions during FreightWaves’ Net-Zero Carbon Summit on Earth Day. Raglin said its goal will align with the Paris Agreement’s scenario to limit warming to “well below 2 degrees Celsius” but is waiting to publicly announce it until the Science Based Targets initiative has validated it, which could take a few months.