Green Bond Round-up, Nov. 29: Prospect of a green ‘muni’ bond market emerges in the UK

The round-up of green bonds news

Mark Carney may have hailed green bonds as a vital financing instrument, but the Governor of the Bank of England’s calls have so far fallen on relatively deaf ears in the UK. There have been issues from Transport for London and Unilever (plus a handful of retail offerings) and ESG bonds from Lloyds. EIB and KfW have tried to boost the sterling market through their green bond programmes too, but compared to its European neighbours, issuers in the country have been slow off the mark. However, things might be about to change: RI can reveal that there are moves to create a municipal green bond market in the UK, mirroring existing markets in the US, South Africa, Norway, Sweden, France, Australia and others.
UK local authorities created a Municipal Bond Agency in 2014 to facilitate bond issuance at local government level and secure better terms (it has a private credit rating). It’s about to undertake its first conventional bond issuance, but those close to the market say local authorities and government officials have been looking at the potential to use the agency to issue green bonds too: local authorities could pool their green projects to create enough scale for a deal. Aidan Brady, Chief Executive Officer of the agency, said it had “discussed green bonds with various people, and are quite excited about being able to support [them]”. However, he added, the focus currently is on its inaugural non-green transaction, which is expected in coming months. Home page
Cathrine de Coninck-Lopez, SRI Officer at asset manager Columbia Threadneedle – which invests in green and social bonds in the UK through the Threadneedle UK Social Bond Fund said the move would be welcomed. “The municipal green bond market has been more of a US market so far, but it would be great to see local authorities in the UK issuing them in order to scale up their impact.” She added that, as well as public transport, housing and flood defences – all of which local authorities in the UK are responsible for – other green projects with strong potential include distributed renewable energy and waste and recycling. “We’d also be very receptive to overall sustainability bonds – if local authorities could mix the use of proceeds across both social and green, that would be very welcome because they have targets and responsibilities around both.” However, de Coninck-Lopez warned, any pooled bonds would have to establish clear accountability, with robust project selection criteria and impact reporting commitments across local authorities, in alignment with the Green Bond Principles (and Social Bond Guidance, if relevant). She also said any issuance should have an external review and, ideally, assurance on its reporting.h6. Europe

BNP Paribas secured better pricing on its inaugural green bond, which it issued this week. The bank said the deal “attracted strong demand from investors, allowing a pricing inside of BNP Paribas ordinary senior debt curve”.

KfW returned to market with a $1.5bn green bond deal last week – upsized from $1bn on the back of investor demand.

Iberdrola was another repeat issuer, coming to market with a €750m 2024 green bond, with a coupon of 1%, to refinance wind farms in Spain. The second-party opinion is from Vigeo Eiris. It’s the firm’s third green bond this year, having issued notes in April and September, making it the most frequent corporate issuer of 2016 so far. Iberdrola said this latest deal was more than three-times oversubscribed, and the majority of the notes were allocated to SRI investors – “thereby enabling Iberdrola to go on diversifying its investor base and increasing the demand that improves these placements at times of market volatility”.
“The issuance price is very competitive in an environment affected by the volatility in interest rates and credit in the wake of the US elections,” it explained in a statement. Alongside the deal, Iberdrola said it would buy back bonds set to mature in 2017 and 2018, with a view to “improve its financial costs for the next few years”, extend debt duration and stagger maturity dates.

In the Netherlands, state-owned bank BNG recently issued a three-year, $600m sustainability bond to finance Dutch municipalities that are deemed to be leaders in becoming sustainable. The ‘best-in-class’ methodology for selection was created in 2014, for the issuer’s inaugural deal, in partnership with Tilburg University. Sustainalytics provided a second-party opinion.


Mumbai is planning to enter the green bond market in coming weeks, according to a blog by Gail Hurley, a policy specialist at the United Nations Development Programme (the same blog also cites Senegalese city Dakar as another municipal mulling the market).


The San Francisco Public Utilities Commission is expected to issue its third green bond today – making it the first US muni to come to market since the country’s election this month. The bond is slated to be $256m, and will help finance projects under the city’s Water System Improvement Programme. Sustainalytics provided the verification letter for the bond’s certification under the Climate Bond Initiative’s water standards.