The International Capital Markets Association (ICMA) has warned that a proposed EU law excluding green and sustainability bonds from sovereigns, supranationals and central banks from green investment and asset calculations could have negative consequences for the development of the market as a whole. The draft delegated act to the EU Taxonomy – which focuses on taxonomy-alignment disclosure rules – would mean that asset managers and banks would have to exclude the EU’s own green bonds when calculating their ratio of green to non-green assets. ICMA warns this could discourage issuance by sovereigns and shrink orderbooks if investors favour corporate and financial issuers. This could in turn create price distortions for non-sovereign bonds, reduce the flow of capital to sustainable activities and hinder market expansion and liquidity.
Meanwhile, the EU has said that it doesn’t plan to issue any further bonds under the NextGenerationEU programme in 2021. The EU had scheduled a syndicated bond issue for November, which some analysts believed could be a second green bond, but this has been cancelled as the EU reduces its funding target for this year by €9bn to €71bn.
Peru has raised $3.25bn from its sustainability bond debut as part of a triple tranche deal, its first international bond since a downgrade to BBB by Fitch in October. Orders for the entire deal, which included $750m of non-labelled debt, reached a total of $10bn, with orders for the 12-year $2.25bn raise hitting $5.8bn and for the 50-year $1bn raise hitting $2.2bn. The two tranches launched with coupons of 3% and 3.6% respectively, with proceeds earmarked for categories including sustainable natural resource management and access to healthcare and education. More than 250 investors took part in the deal, with allocation of 57% to American investors and 56% to asset managers.
The popularity of sovereign green bonds has led to “a tendency to hoard them”, leading to lower liquidity and a pronounced secondary market greenium, according to Kris Atkinson, Portfolio Manager of Fidelity’s sustainable reduced carbon bond fund. Germany’s €6.5bn green bond issued in September last year has been trading as much as 7bp lower than its vanilla twin, with the relative ease of selling green bonds providing “little comfort to those wishing to rebalance portfolios who need to buy [them] as well”. Atkinson also said that without robust certification, the green label “is more of a trust me exercise”, and that while the market matured, “the maxim ‘buyer beware’ remains as true as ever”.
The World Bank has raised $5bn from a new sustainable development bond. The 10-year bond saw orders of $9.5bn, with 47% allocation to Asian investors and 52% to central banks and official institutions.
Municipal green bonds in the Great Lakes St Lawrence region, which encompasses eight US states and two Canadian provinces, saw a greenium of 23.6bp once bonds used to fund water and sewerage projects were excluded, according to a study by Peter Adriaens, a Professor at the University of Michigan. An analysis of 865 vanilla and green municipal bonds showed a greenium of -0.6bp when water and sewerage bonds were included, but this increased to 23.6bp when they were excluded. A Morningstar report in July found that many infrastructure projects which would qualify as green expenditure were being funded through vanilla bonds as municipal issuers were unlikely to see a large enough greenium to recoup the additional framework and accounting costs.
Another of the UK’s crown dependencies could be entering the green bond market as the head of the Channel Island of Jersey’s Climate Change Citizen’s Assembly has called on the island to fund its net zero transition, the cost of which is estimated to be £250m, with a green bond. A spokesperson for the Ministry for Treasury and Resources said: “Ministers have said they intend to look at all financing options as part of the long-term financing strategy, which will be set out in the proposed Government Plan in 2023. This will include analysis of all options, including green bonds and other measures. Any additional borrowing would also need to be in line with the wider Debt Strategy for Government”.
Dutch electricity transmission system operator TenneT has raised €1bn from its largest ever green bond, which was twice oversubscribed. The proceeds from the 13.6-year notes, which pay a coupon of 0.875%, will be spent on power transmission projects in the Netherlands and Germany, focusing on connecting offshore wind farms to the electricity grid, and enhancing onshore renewables transmission capacity.
Natural gas company Duke Energy has launched its sustainable financing framework and yesterday received a second party opinion from S&P Global. S&P judged the framework to be aligned with the green, social and sustainability bond and green loan principles, but gave it a rating of ‘satisfactory’ in all categories – its lowest rating apart from non-aligned. Meanwhile LNG giant Qatar Energy has denied a Reuters report saying it is looking to issue green bonds.
Annual green bond issuance will hit $1tn by the end of 2022, a survey of market participants by the Climate Bonds Initiative has predicted. A quarter of the respondents to the survey, which was carried out at the CBI’s annual conference in September, said that they thought the $1tn mark for single year green bond issuance would be reached in Q4 2022. At the end of Q3 this year, total green bond issuance stood at $354.2bn, leading the CBI to raise its year-end forecast to $500bn.
Israel’s Teva Pharmaceutical upsized its planned $4bn sustainability-linked bond to $5bn off the back of a large orderbook, the largest ever sustainability-linked bond. The bond, which will be used to repay existing debt, was issued in two Euro tranches, due 2027 and 2030, and two dollar tranches, due 2027 and 2029. The interest rate on the notes will be linked to a 25% reduction in Scope 1 and 2 emissions by 2025 and an increase in access to medicines in low and middle income countries by 150%, with a 15bp per target penalty for the two tranches due in 2027 and 12.5bp for the two longer maturity tranches. Dominican Energy generator EGE Haina has raised $300m from a sustainability-linked bond, also for refinancing. The 7-year bond pays a coupon of 5.75% which will increase by 50bp if the company has failed to achieve a renewables capacity of 526.6MW, up from around 290MW, by the end of 2026.
The investment arm of the Inter-American Development Bank has raised A$50m (€32m) from its first blue bond. The 10-year bond pays a coupon of 2.2% and will be used to expand access to clean water and sanitation in Latin America and the Caribbean.
Canadian professional services firm Stantec has added two SPTs to its extended $1.1bn syndicated credit facilities. The interest rate on the $800m revolver and $160m and $150m term loans is linked to GHG reductions aligned with the firm’s science-based targets and, in a first for any SLL, its score on the Bloomberg Gender Equality Index, with interest savings donated to organisations with positive social or environmental impacts. Meanwhile, UK retailer John Lewis has signed a £420m sustainability-linked revolving credit facility with a group of seven banks, whose names it declined to disclose. The interest rate on the 5-year agreement is linked to GHG emission reductions, reductions in food waste and usage of fossil fuels. Aviva has signed a £200m refinancing deal with the Primary Health Properties real estate investment trust linked to portfolio EPC ratings and new developments being built to BREEAM standards.
Bank of China has raised $300m from the first USD sustainability-re-linked bond. The proceeds from the bond, which pays a base coupon of 1%, will be invested in a portfolio of sustainability-linked loans, with the bond coupon adjusted by a maximum of 5bp in the first and second years of the bond based on whether the interest rate adjustments in the underlying loan portfolio. Orders for the deal reached $700m, with 96% allocation to banks and 79% allocation to APAC-based investors.
Micron Technology has issued its inaugural green bond, raising $1bn in a dual tranche deal. The US-based computer parts manufacturer raised $500m from a 3.366% tranche, due 2041, and $500m from a 3.477% tranche, due 2051.
Citi also hit the market with a billion-dollar deal when it issued its second social bond, which will be used to fund social projects in emerging markets. The 4-year bond pays a coupon of 1.281% and SOFR plus 0.528% in the final year of the bond. In other banking news, Triodos has raised €250m from its inaugural green bond after pulling the deal on its first attempt two weeks ago. The 10.25-year 2.25% bond was still barely able to cover its books, seeing orders of just €290m. Proceeds will be allocated to green buildings, renewables and sustainable land use.
Another three lenders entered the market this week, with Finland’s Municipality Finance has raising £250m from its first sterling green bond, which matures in 2024 and pays a coupon of 0.865%. MuniFin said it had decided to issue in sterling as it had seen a larger interest from UK investors following the green gilts. Ohio-based bank Fifth Third raised $500m from its inaugural green bond, becoming the first US financial with under $250bn in assets to enter the market. The notes, due 2027, pay a coupon of 1.707%, with eligible framework categories including green buildings, renewables and energy efficiency. Greece’s Piraeus Bank saw orders of €750m for its €500m inaugural green bond, which priced with a yield of 3.875%.
DBS Bank and United Overseas Bank have signed a S85.8m (€54.8m) green loan with Sunseap Group to finance its installation of solar panels across 1,200 housing blocks and 49 government sites in Singapore.
Canada’s accountancy body has called on the government’s Sustainable Finance Action Council to define standardised frameworks for financing mechanisms, including sustainability-linked loans and green bonds, key to the Net Zero transition. CPA Canada's Canada’s Transition to Net Zero: Accelerating Collaboration to Meet 2050 aims to offer practical actions that economic sector leaders, policymakers, and the investment community can take to “facilitate a unified, inclusive, and just transition that positions Canada to remain competitive in a global low-carbon future.” Other recommendations include the establishment of sector-by-sector pathways for Canada to achieve Net Zero by 2050, with clear carbon budgets for each sector of the economy, as well as companies tying executive compensation to the achievement of interim targets “to ensure formal accountability for progress toward long-term net-zero target.”
Italian clothing company OVS said last week that it had received €150m in orders for its €200m sustainability-linked bond in the first two days of offering. The 2.25% coupon on the notes, the offering of which closes today, is linked to OVS’ commitment to reduce scope 1, 2 and 3 emissions by 21% and achieve targets relating to supplier sustainability assurance, all by 2024.
Hong Kong’s ESR Cayman has signed a $700m sustainability-linked loan with a consortium of banks, with United Overseas Bank acting as Sole Global Coordinator, Mandated Lead Arranger and Sustainability Advisor, joined in the latter two roles by Credit Agricole. The dual tranche loan pays an interest rate of Libor plus 2.25% for a 3-year $350m tranche and Libor plus 2.75% for the 5-year $350m tranche, which will be reduced if undisclosed sustainability targets are achieved.
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