Bonds & Loans: Poland mulling social bonds to fund Ukrainian refugee response

A weekly overview of ESG developments for fixed income: France issues inaugural inflation-linked green OAT, ESG debt 27 percent of EM issuance this year.

The Polish government is mulling the issuance of social bonds to fund its response to the Ukrainian refugee crisis, the head of the Warsaw Stock Exchange has said. In an interview with the UK’s Daily Telegraph [paywalled], Marek Dietl said the exchange had been in talks with the government over potential social bonds in 2023 to support public services put under additional pressure by the 3.5 million refugees taken in by Poland. He mentioned the potential for a premium on the bonds, saying: “Green bonds pay you less but you feel like you did something good for the planet, and now hopefully there will be the issuance of Polish social bonds.”

Last month, ICMA released a note confirming that proceeds from social and sustainability bonds could be used for the “support of fragile and conflict states”, including emergency relief to refugees. While the EBRD has ruled out issuing social bonds specifically for refugee support, the Council of Europe Development Bank issued a €1 billion social inclusion bond in April to support its response to the refugee crisis.

In other sovereign news, France has made history by becoming the first to issue an inflation-linked green bond to institutional investors. Hong Kong issued a retail green bond earlier this year with an inflation-linked coupon.

France’s 15-year OAT saw orders of close to €27.5 billion before the final size was set at €4 billion, allowing the sovereign to cut three basis points off initial price guidance. Almost half of allocations went to green investors, with 230 taking part in the deal.

Germany has also come back to the green bond market with a tap on its 30-year green bond issued in May last year. Exact details are unclear, but Reuters reported that the sovereign saw €15.8 billion in orders for the bond, which pays a coupon of 2bps lower than its non-green twin.

Meanwhile, in Japan, Bloomberg has reported that nuclear power may be eligible for funding by the country’s green transition bonds. “People familiar with the matter” told Bloomberg that the government was steering clear of standard green bonds in order to allow for a wider use of proceeds.

The SSA market also saw further activity this week with Danish municipal funding agency KommuneKredit and the Spanish region of Andalusia raising €500 million from green and sustainable bonds respectively. KommuneKredit saw close to 2x subscription for its deal, while Andalusia was able to cut initial price thoughts by 3bps on the 2032 bond.

ESG-labelled bonds made up 27 percent of total bond issuance in emerging markets up to 13 May and now account for 9.4 percent of total outstanding bonds, according to a new report from Bank of America. While EM issuance is down 45 percent year on year, labelled issuance has shrunk by 23 percent, with $34 billion of issuance across 70 transactions.

Asia still makes up the majority of issuance, accounting for 56 percent in 2021 and 62 percent so far in 2022, with EMEA accounting for 23 percent and 20 percent and Latin America 21 percent and 18 percent respectively.

In bank lending, HeidelbergCement has replaced its existing revolving credit facility with a €2 billion line linked to its emissions intensity, while real estate services firm Colliers International has upsized its credit facility to $1.5 billion and linked it to three targets: reducing emissions in line with a science-based target, increasing female representation in management roles, and achieving health and safety certification for its offices.

Find out more about this topic from industry leaders at the RI Europe 2022 conference, taking place in person in London on 14-15 June.