Hennes & Mauritz AB plans to join a growing pool of issuers of bonds with coupons tied to targets aimed at protecting the environment when it makes its bond market debut.

The Swedish clothing retailer hired banks to arrange a €500 million ($607.1 million) offering of eight-and-a-half-year bonds, according to a person familiar with the matter, who asked not to be identified because they’re not authorised to speak about it. The bond will be structured in a way that will encourage H&M to increase use of recycled materials and cut greenhouse gas emissions, the person said.

Sustainability-linked bonds offer access to the low-cost ethical debt market, while avoiding the restrictions found in traditional green bonds on how the funds can be spent. H&M would join issuers including Tesco Plc, LafargeHolcim Ltd. and Chanel Ltd. that have tapped the tiny, but fast-growing sustainability-linked bond market.

“It’s a stronger commitment to link financing to targets instead of linking it to specific use of proceeds and the company believes that the timing and market conditions are very good,” H&M representatives said in an emailed response to Bloomberg News questions. “There is a very big demand for sustainably-linked bonds and the terms are expected to be very favourable.”

H&M plans to hold a group investor call at 1 pm GMT today. The offering is managed by BNP Paribas SA, Commerzbank AG, Danske Bank A/S, Skandinaviska Enskilda Banken AB and Standard Chartered Bank Plc.

The company’s aim is that, by 2030, all of its materials will either be recycled or sourced in more sustainable ways. That compares with 57 percent in 2019, according to the latest available data from the firm.

H&M warned in late January that it would be difficult to make a profit this quarter due to lockdowns. The clothing retailer cut 16,000 full-time jobs during the past fiscal year as it pushed ahead with the biggest-ever reduction in its store network.

By Maciej Onoszko and Leo Laikola