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ESG Briefing, February 25th: Bonds & Loans

The latest ESG developments for fixed-income

Climate Bonds Initiative is requesting public feedback for a newly-developed criteria on agriculture-based climate mitigation, adaptation and resilience interventions. It says the new criteria are aimed at increasing financing flows to decarbonise the agricultural sector, which currently accounts for just over 3% of the climate-aligned bond universe. It is estimated that 80% of deforestation occurs as a result of agricultural expansion.

Kommuninvest, the fundraising arm for Swedish local governments, has engaged Barclays, BNP Paribas, Danske Bank, JP Morgan and Swedbank to organise investor calls ahead of 2020’s green bond issuance. Kommuninvest has indicated a preference for phone calls over physical meetings as part of its sustainability strategy.

A green bond impact reporting framework first published in 2017 issued by a grouping of Nordic public sector issuers has been updated to incorporate mapping to EU Environmental Objectives and SDGs, and recommendations around reporting on allocation and impact. The group – which includes Kommuninvest (Sweden), MuniFin (Finland), Swedish Export Credit Corporation (SEK) and seven Swedish municipal or regional issuers – hopes that that the framework will be useful for the private sector.

NN Investment Partners (NN IP) says that that corporate green bonds are now a viable replacement for regular bonds in a credit portfolio. Analysis by the €276bn Dutch asset manager has concluded that while the green bond market was too underdeveloped before 2016, the asset class has shown consistently better performance compared to conventional bonds since then, coupled with reduced volatility driven by increased diversification.

Scope Ratings, a European credit ratings agency, has said that a planned sovereign green issuance by Germany may not generate a higher volume of green projects if existing projects are simply re-labelled. The agency also said that large-scale green issuances are unlikely if the government sticks to a strict policy to balance its budget. In the upcoming issuance, due in the second half of the year, Germany plans to designate a portion of bonds sold in conventional debt auction as ‘green’.

JetBlue Airways has entered into a sustainability-linked revolving credit facility – the first for the airline industry – tied to the company’s ESG score as rated by Vigeo Eiris. This was done by amending an existing $550m facility with BNP Paribas. Improvements in the airline’s ESG score will reduce the fees it pays on the facility, while deteriorating scores will have the opposite effect.

Sustainalytics has provided third party verification on a A$100m ($67m) sustainability-linked bond issued by Sydney Airport, a first for the US private placement market. The bond’s coupon is linked to the airport’s Sustainalytics ESG risk rating. A spokesperson for the airport told RI that National Bank of Australia (NAB), MUFG and Scotiabank partnered on the transaction with “sophisticated institutional investors participating in the sustainability-linked tranche”.