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Green bond round up, Dec 20: Green bond ETF proposed in US, as Sweden launches inquiry into market

The latest developments in the green bond space

US

The green bond market may be about to see its first exchange-traded fund in coming weeks, as a US-based firm, VanEck Vectors, filed a proposal to the Securities and Exchange Commission. The proposal is for a fund that invests at least 80% of its capital in green bonds, tracking an undisclosed index. The index provider has not been identified in the filing, but it states that at the end of October it had 155 constituents from 88 issuers. The ETF will not invest in the whole universe, “because of the practical difficulties and expense” of doing so, but would hold “corporate, quasi-sovereign, government-related and securitized green bonds, and may include both investment grade and below investment grade rated securities”. It will not invest more than 20% in notes below investment grade. VanEck Vectors declined to comment on the filing. US firm State Street was the first to launch an index-linked green bond fund last year, with a mutual fund that tracked MSCI’s green bond index.
The Central Puget Sound Regional Transit Authority (known as Sound Transit) – a regional public transport body serving Greater Seattle – has returned to market with a $400m deal. It’s a smaller transaction than its 2015 green bond, which totaled nearly $1bn. As usual with municipal bonds in the US, it came in a series of tranches – ranging from five years to 20 years, all with interest rates of 5%. Yields vary between 1.71% and 3.11%.

Europe

After Poland secured its place as the world’s first sovereign green bond issuer last week, Sweden stepped up its efforts to follow suit. The country’s government – which previously told RI it was planning on issuing a green bond – has now launched an inquiry dedicated to working out how to grow the market. It is expected to result in a proposal for a sovereign green bond, as well as a broader assessment of the asset class. Mats Andersson, former CEO of the Fourth AP Fund, has been appointed to lead the initiative. Sweden’s Minister for Financial Markets and Consumer Affairs, Per Bolund, said it was important there was “a high level of confidence in the market”, adding that “growth must not take place at the expense of watered down environmental requirements”. The inquiry’s remit includes “analysing and producing examples of project types that could be financed through green bonds, and proposing a structure for processes and criteria that identify green projects”.
“The inquiry is to also analyse and present proposals on processes and routines for third-party validation of green bonds, and present proposals on what information investors need to make well-founded investment decisions”, the government said in a statement. “If the inquiry presents a proposal for a sovereign green bond, such a proposal must be compatible with the design of the Budget Act and efficient national debt management, and be cost-neutral,” it added. The inquiry will present its findings in December 2017.
Elsewhere in Sweden, SEB bank is to launch a research series on green bonds next year, and has appointed former OECD green finance specialist Christopher Kaminker to spearhead the work. Kaminker has joined the bank in a newly-created senior position, as an advisor in the Climate and Sustainable Financial Product Solutions Team.He will lead research around the topic as a whole, but will focus on green bonds. He is yet to be replaced at the OECD, where he produced reports on the green bond market and mobilising capital to finance the transition to a low-carbon economy.
And the head of green bonds at Sweden’s Kommuninvest has said he expects investors to demand broader ESG disclosure around green bonds in the future. Speaking at an event in Stockholm last week, Bjorn Bergstrand, Kommuninvest’s recently-appointed Head of Sustainability, said that issuers are currently expected to focus their impact reporting on Co2 reductions, but added that he “would expect to have to report on the broader societal impacts of these green investments” as the market develops, adding that Kommuninvest – which raises funds on behalf of Swedish municipalities – may also begin to issue social bonds “which will also require us to report on other aspects”.
Italian electricity and gas producer Enel is readying itself to issue a green bond. The firm, which is majority-owned by the Italian government and specialises in renewable energy and natural gas, expects to come to market with a deal which will be used to finance renewables, transmission, distribution and smart grid projects, or others which “meet a set of environmental and social criteria”. Potential projects identified by Enel include an onshore wind farm in Mexico and solar PV in South Africa. Vigeo Eiris has conducted a second-party opinion. No further details about the size or terms of the deal have been disclosed.

LatAm

Mexico City came to market with its green bond last week too, in what’s claimed is the region’s first municipal green bond. The 1bn pesos deal (€47m) will be used to finance public transport, water projects, energy efficiency and renewables. The framework has been assessed by Sustainalytics.

Australia

Australia’s largest university, Monash University, has sold a green bond in a deal that saw demand reach more than four-times the offering. The A$218m deal included USD and AUD tranches, with tenors of 15, 17.5 and 20 years. Australia’s state-backed Clean Energy Finance Corporation took A$20m of the notes. Proceeds will finance energy efficient lighting and buildings, and solar panel installation. Other universities to tap the market so far include the Massachusetts Institute of Technology (MIT) and the University of Cincinnati, but this is the first to secure a Climate Bonds Initiative certification. It also has a green bond assessment from Moody’s. The CBI said the deal proved that “despite the current political uncertainty is looks like quality offshore labelled green debt is attractive to US institutional investors”. It added that, to encourage other Australian issuers to tap the market, large pension funds should “make their voices heard locally and internationally” calling for more green bonds.