Bonds & Loans: China launches ‘low-carbon transition bond’ programme

A weekly overview of ESG developments for fixed income: Climate Bonds Initiative calls for more sovereign ESG issuance in emerging markets; First Baltic SLB.

China’s National Association of Financial Market Institutional Investors has launched a low-carbon transition bond programme in partnership with the country’s central bank, which seeks to “support the green and low-carbon transformation of traditional industries”. Companies in eight sectors that the association says are shut out from the green bond market – including electricity, building materials, steel, metals, petrochemicals, paper and aviation – will be eligible for the programme, which lists cleaner production of coal, use of natural gas as a clean energy, and projects with low-carbon transformation benefits as eligible for funding through these bonds.

Issuers must disclose the reduction in emissions from projects funded by the bonds and their alignment with China’s decarbonisation programme. The association recommends that disclosures be signed off by a third party, and issuers should also publish post-issuance reports.

In other emerging markets news, the Climate Bonds Initiative has called for more sovereign ESG debt to be issued by emerging market countries on the back of this year’s COP27, scheduled to be held in Egypt. Thirty-six countries have issued ESG debt versus the CBI’s target of 50 having issued or committed to do so.

Sean Kidney, chief executive of the CBI, said: “The twin COPs in Egypt and UAE [in 2023] are a bridge to more sovereign issuance from emerging markets. We should be looking to a post-COP28 environment where green, social and sustainable sovereign debt from developing nations has been supported and is multiplying, with new deals on horizon.”

He added: “Sovereign issuance is an indicator of action from policymakers and financial regulators in facilitating north to south climate investment. Finance for mitigation, adaptation and resilience remains dangerously inadequate. The next two years of COPs are a springboard for policymakers to turn commitments into trillions, directed where it’s needed most.”

The sovereign space has been quieter over the past week after France and Germany came to the market, with the latter tapping its 30-year green bond for €4 billion on 8 June. Demand reached just under €16 billion for the deal, which – along with offerings from Austria and France – added significant weight to European sovereign issuance.

Staying in Germany, the federal state of Baden-Württemberg saw orders of €610 million as it came to the market with its second €350 million green bond. The state’s finance minister Danyal Bayaz said there had been “strong interest” from investors.

In Scandinavia, Sweden’s SBAB Bank raised €750 million from a 3.5-year green bond – its second this year and largest bond since 2015 – off the back of a €1.3 billion orderbook, while Finnish consumer packing firm Huhtamäki raised €500 million from a sustainability-linked bond tied to GHG emissions. Ørsted also came to market, raising €1.35 billion from a dual tranche green bond.

Lithuanian utility EPSO-G sold a €75 million sustainability-linked bond to investors in the Baltic states and Sweden, with the EBRD taking just under one-third. The coupon on the bond, which the firm claims is the first from the Baltics, is linked to GHG emission reductions and lost electricity from EPSO-G’s network. EPSO-G has also committed to not using proceeds from the bond to finance expansion or modernisation of its gas network.

On the other side of the Atlantic, Goldman Sachs returned to the sustainable debt market, raising $700 million from a sustainability bond. The five-year bond yields 1.35 percent over US treasuries, Bloomberg reported.

In more US news, midstream oil, gas and water service provider Kinetik has raised $1 billion from a sustainability-linked bond that pays a coupon of 5.875 percent. The interest rate on the notes is linked to reductions in overall GHG and methane emissions intensity, as well as representation of women in “corporate officer” positions. Meanwhile, US Steel has added carbon reduction, safety performance and facility certification targets to its $1.75 billion credit facility.

In other noteworthy deals, KEPCO turned to the dollar market for new green funding, raising $800 million from a dual tranche deal. South African gold miner Harmony has signed a string of multi-currency green and sustainability-linked loans totalling around $660 million. The deal consists of a green term loan to fund solar projects and a three-tranche sustainability-linked credit facility tied to GHG emissions, renewable energy share and water consumption.