Green Bond Round-up, February 7: SEB roadshows debut green bond

SEB is roadshowing its debut green bond this week, with a view to issuing a benchmark-sized, five-year deal as early as next week. The bank, a pioneer of the green bond market, has acted as a lead manager on many deals and offers a dedicated green bond fund to customers, but has never tapped the market itself.

Now, its green bond framework has received a ‘dark green’ rating from Cicero, and PWC has produced a letter confirming that the appropriate processes are in place. “On the back of those two things, we were given the go ahead by our group management,” explained Christopher Flensborg, Head of Climate and Sustainable Financial Solutions at SEB.

Flensborg says SEB has spent the last two years creating a ‘virtual green balance sheet’ to help it select eligible projects. “It’s a major process that has been led by Group Treasury and has involved all units of the bank. Essentially, it’s like having a green bank inside of SEB: we’ve identified certain categories that are ‘dark’ green, and have used that definition to find assets within part of the bank, with a view to rolling it out across the whole institution.”

Of SEB’s total SEK1.5trn (€150bn) lending book, SEK170bn has been assessed for eligibility. So far, SEK11.8bn has been identified as ‘dark green’. Projects will be assessed for ‘lock-in’ and ‘rebound’ risks, among other things. “The risk with any green investment is that you’re making it for a set period of time: if that investment is very ‘dark’ green, then it probably won’t be a problem, but if it’s a ‘medium’ green investment where you would expect more progress to be made in 20 years’ time, then you are not optimising the transition to a low-carbon economy by locking in an investment for 50 years. That needs to be assessed,” explained Flensborg. Rebound risks are those around the broader environmental downsides of a climate-friendly project, to ensure a project has net green benefits. SEB will report annually on the proportion of the proceeds that have been allocated, and to what eligible categories, but it has not yet committed to impact reporting. “We’re having a huge headache with benchmarks,” explains Flensborg. “What kind of benchmark truly reflects the impact of the projects being financed? For some categories, like wind, we have them, but not for all. We’re working towards something meaningful, but we’re careful about making any promises that we will have it in place by next year.” SEB is sole green bond arranger and structurer on the deal, while HSBC, SEB and ABN Amro are joint bookrunners. Link. Europe

Elsewhere in Europe, France’s sovereign wealth fund Caisse des Depots is reported to be readying itself to tap the green bond market. Following in its government’s footsteps, the public-sector fund has mandated Credit Agricole, Societe Generale, BNP Paribas, HSBC, Natixis and JP Morgan to launch a 5- to 7-year deal.

Fabege’s Head of Treasury has welcomed
a growing demand for longer-dated green bonds, as the Swedish property firm issued yet another deal via financing company Svensk FastighetsFinansiering. Following its most recent green bond last month, Febege has now sold SEK150m of five-year notes into the market with a spread of 135 basis points above the three-month Stibor. Nordea was the lead manager.

German development bank KfW has published its latest green bond report, showing that in 2016 it issued four green deals totalling €2.8bn – 4% of its overall fundraising for the year. The deals were in SEK, Euro, sterling and USD and contributed to the prevention to some 2.2 million tons of greenhouse gas emissions, according to KfW, mainly in Germany.

North America

The District of Columbia Water and Sewer Authority has returned to market with a $100m green bond, as part of a wider fundraising drive last week. Having turned its attention to launching the world’s first ‘environmental impact’ bond in October, DC Water has now issued its third traditional use-of-proceeds green bond, which has been awarded a GB1 rating by Moody’s. Proceeds will be used to finance a $2.7bn clean rivers project to reduce the levels of sewerage entering local waterways, and provide flood mitigation.

Australia

Flexigroup is roadshowing its second green asset-backed security. The firm, which finances rooftop solar in Australia, first came to market in April last year, with a A$50m (€35.7m) deal that was certified by the Climate Bonds Initiative, assessed by DNV GL and structured by NAB. RI understands it is likely to return to market next week with a similar deal.