Green Bond Round-up, July 26: Race heats up for standards as Bundesbank warns of ‘Pandora’s Box’

All the latest green bond developments.

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The race is on to create a set of green bonds standards, as European and international efforts heat up. Last week, Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue and Head of Financial Stability, Financial Services and Capital Markets Union, said the European Commission would prioritise its support of the development of green bond labels – one of eight early recommendations put forward by the High Level Expert Group on Sustainable Finance (HLEG) this month. At an event on the recommendations in Brussels on Tuesday, Dombrovskis told the 400-strong audience that the labels – which would be based on green taxonomies also developed as part of the initiative – “will provide trust”. The taxonomies are expected to be created under the leadership of the European Investment Bank and the Climate Bonds Initiative (CBI). Meanwhile, this week sees the closing deadline for votes on the creation of an international green bond standard, proposed by the American National Standards Institute (ANSI). ANSI submitted in May an application to the International Standards Organisation to develop standards titled: Green bonds – Environmental performance of nominated projects and assets. “This standard will harmonise definitions of green bonds, specify requirements for nominating projects and assets for funding; specify eligibility, use of proceeds and disclosure requirements; and describe assurance options,” according to the document. The application is coming to the end of the three-month period during which national standards bodies – which make up ISO – can vote on whether to accept the proposal. If it gets the go ahead, a working committee will be set up, which would be co-chaired by the Climate Bonds Initiative and NSF – a CBI verifier and US-based not-for-profit. ISO approved the creation of standards around green metrics, put forward by the 2° Investing Initiative and the UNFCCC earlier this year (link), and is also considering a proposition from the Chinese standards body on green taxonomies. There are some concerns over ‘doubling up’ on green definitions, with multiple green bond standards being developed alongside each other, leading to further confusion in an already complex market. “But what ISO usually does is reference existing industry developments and codify them,” explains Sean Kidney, CEO of CBI and a member of HLEG. “So, what they’re looking at doing is using the Climate Bonds Initiative taxonomy and codifying that in the ISO format.” However, the ISO process is expected to take at least three years, at which point, Kidney says, it will also be able to reflect the work done within HLEG. “Our objective is to have common approaches around the world.”


Although there is growing excitement around the role of EU regulators and policymakers in spurring on the green bond market, there is also resistance to some of the ideas being put forward. Speaking at another event in Brussels earlier this month, also on green finance, President of the Bundesbank – Germany’s central bank – Dr Jens Weidmann, explained that “to foster the necessary transition to a low-carbon economy, some observers are actually calling for monetary policy to take climate risks into account”. However, he said: “neutrality is an important principle of the Eurosystem’s operational framework”, and it is important not to favour particular financial instruments over others. “Thus, to avoid opening Pandora’s box, we should not award preferential treatment to green bonds, for example, either in the Corporate Sector Purchase Programme or in the collateral framework. The Eurosystem’s mandate is to maintain price stability. And in order to safeguard its ability to maintain price stability, monetary policy should not be overburdened by other policy objectives.” For the full speech, see here.
Fonds de Compensation – the Luxembourg pension giant – will create a dedicated green bond sub-fund next year. The country’s €17bn reserve fund plans to launch the sub-fund following a request for proposals which it told RI “might be launched during the second quarter of 2018”. “Many details” are still to be decided, a spokesman said, including the size.“The decision to launch these sub-funds was taken following a review of our investment strategy, part of which was dedicated to our approach to socially responsible investment,” he added. FDC currently has requests for proposals out relating to mainstream bond mandates, but has requested a sustainability element to applications.
Lithuanian state-controlled power company, Lietuvos, has issued its first ever bond – which it decided to label green – in a very successful inaugural deal. The firm, whose functions include power generation, supply and distribution, natural gas trade and distribution and construction of energy infrastructure, sold €300m of 10-year, 2% notes. Proceeds will finance renewables, pollution prevention, energy efficiency and clean transport. Cicero gave the second opinion, while SEB was the bookrunner. The deal attracted more than €1.5bn of orders from some 140 investors. As a result, pricing tightened from initial thoughts of 150 basis points above mid-swaps to 120 basis points above. 46% of final buyers were asset managers, with 16%, 17% and 18% taken by insurance, banks and official institutions, respectively. Almost all of the buyers were European.

French transport company SNCF Reseau has sold what it claims is the longest-dated green bond ever issued in euros. The state-owned firm, which runs France’s railway network and is a member of the newly-launched French ‘Finance for Tomorrow’ initiative, issued its third labelled deal – this time with a tenor of 30 years. EIB also issued a 30-year Climate Awareness Bond in recent weeks, but a spokesman for SNCF said its bond was 30.86 years, while the EIB’s came in at 30.81 years. The €750m deal was bought by investors including Blackrock, Axa, Zurich and APG (on behalf of a series of Dutch pension funds).


DBS, formerly the Development Bank of Singapore, issued its first green bond in a $500m floating rate deal. The five-year notes have a quarterly coupon of 0.62% above three-month Libor, and achieved what the bank described as “very compelling pricing” after tightening. Proceeds will be used to provide intercompany loans within the bank and its subsidiaries with a view to financing green projects including energy efficiency projects, sustainable transport, renewables, energy efficiency, waste management and climate adaptation. The second opinion was provided by Sustainalytics.

Standard & Poor’s Global Ratings has performed its first assessment of a Chinese green bond, giving its top score to the recent green bond from Three Gorges Corporation. The issuer is a controversial one in the responsible investment space, having been behind the largest hydro dam in the world, which resulted in mass displacement of people and a range of environmental concerns. As a result, many SRI buyers shied away from the offering, although proceeds will finance wind energy projects in Europe. In a blog last week, the Climate Bonds Initiative said that although previous bonds from Three Gorges were still pending inclusion in the NGO’s database, those are linked to largescale hydro. This latest deal on the other hand was welcomed for its move towards wind assets. “It’s another positive example where green bonds are about the assets more than the company,” the blog concluded.


Banco de Comercio Exterior de Colombia, the Colombian development bank otherwise known as Bancoldex, will issue a green bond to finance pollution control, resource efficiency, sustainable transport, energy efficiency, renewables, and green buildings. Sustainalytics have provided a second-party opinion.

North America

Renovate America, a US company specialising in rooftop solar and residential resource efficiency, will return to market with an asset-backed green bond clean energy and water and energy efficiency – some using the PACE programme. Sustainalytics reviewed the framework here.