Hundreds of investors, issuers, banks and other market players descended on the City of London’s historic Guildhall yesterday to discuss the future of the green bond market, at the annual general meeting of the Climate Bonds Initiative.
The event honed in on what is needed from the market over the next year, with suggestions including further sovereign issuance growth, policy incentives and the creation of a ‘shared language’ through which to talk about greenness. A slew of little-tapped green sectors were flagged up as having potential to help scale the market over the next couple of years, such as marine, water infrastructure, sustainable crops, aquaculture, wastewater, biofuels, land use, forestry, sustainable fisheries and biochemicals.
Florian Sommer, Senior Strategist & Head of Sustainability Research at German investment house Union Investment called for “a truly independent green bond ratings service”. “We’ve seen the emergence of such services, but we don’t see one that covers the entire universe and has a consistent methodology – I think that will be important for the credibility of the market”, he said, adding that this should ultimately be extended to cover social projects too.
He announced his firm would “move into a new phase” by launching a green bond fund next month. Brazilian development bank BNDES will also mandate its long-awaited green bond fund in coming weeks, it has confirmed, adding to the long list of fund-related announcements since the start of 2017. Two green bond exchange-traded funds have been launched over the past seven days, kickstarting the market.
Lyxor Asset Management, a company owned by Societe Generale, launched its vehicle after partnering with index provider Solactive recently to create a new green bond index, which the fund will replicate. It will invest in investment grade, labelled green bonds issued in euros and US dollars. The Climate Bonds Initiative selects whether the bonds are eligible. Lyxor described the ETF as “an important first step towards our objective: to propose an expanded range of innovative investments based on ESG”. Hot on Lyxor’s heels was VanEck Vectors, a US-based mainstream investment manager, which also launched a dedicated green bond ETF this week. This one tracks the S&P Green Bond Select Index. All bonds included in the fund must be rated by at least one ratings agency.
Mirova, the responsible investment arm of France’s Natixis, announced its third green bond mandate last week. The Mirova Global Green Bond Fund is a mutual fund and will be run by Natixis Asset Management – the means through which Mirova operates in the US – as one of its underlying products in its new ‘Sustainable Future’ offering. It is co-managed by Chris Wigley and Marc Briand. Despite being focused on North America, it must invest at least 40% of its capital in bonds outside the US. BlackRock is also expected to begin offering a dedicated green bond fund in the coming weeks, while BNP Paribas has said it is working on a strategy for launch later in the year.h6. North America
On the issuance side, California’s Deputy State Treasurer for Legislation and Infrastructure Financing, Alan Gordon, said at the CBI event that the Golden State was “actively pursuing” aggregation and securitisation opportunities in the green bond market, adding: “That would require new legislation, but we don’t think it would be difficult to get the governor to sign that off.” He also said the state was looking at how it could cater for the investment values of ‘millennials’ by issuing retail green bonds, which could carry lower coupons than those aimed at institutions.
Europe
Iberdrola has returned to market with its first green bond of 2017, having secured its first labelled green loan last week. The Spanish utility sought to raise between €750m and €1bn in green notes last week, with initial pricing thoughts of 80-85 basis points above mid swaps. Investor demand exceeded €2.3bn, and pricing settled at 65 basis points above mid swaps on a €1bn transaction. The final order book was €1.9bn, after tightening. German and Spanish investors took a larger amount of the notes than in Iberdrola’s previous offerings, while French buyers took less of the deal.
US-based fund manager Mariner has bought $3bn of uniquely-structured green notes issued by Credit Agricole. The bank, which already issued privately-placed green bonds, has created a ‘synthetic risk transfer’ for its green project financing and loans.
Australia
National Australia Bank has now closed the first Australian offshore green bond. It sold €500m of five-year notes at 0.35%. Demand surpassed €1bn. This green bond was NAB’s second, and was certified against Climate Bond Initiative standards. Proceeds will be used to refinance renewables and public transport.
Africa
Nigeria is set to come to market with its debut deal today (March 7). No further details have been disclosed yet, but the bond will be the first green sovereign deal out of Africa, and only the third internationally.
Asia
The China Securities Regulatory Commission has issued guidelines to complement those already published by the People’s Bank of China. The body, which regulates bonds issued by public corporate companies, also confirmed that “a green channel will be established to accelerate the approval of bond issuance and financial institutions including brokerages, fund managers and banks will be encouraged to invest”.
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