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Green Bond Round-up, November 7: Issuers claim green label boosts pricing, as Pimco calls for more ‘purpose’ bonds

The latest green bond developments

Climate Bonds Initiative has called for more action and less talk from investors. In its recent blog it described the growing list of investor statements being made on green bonds at big events as “passé”. Instead, it wants investment commitments to move the market forward. The comment comes just days before Pimco – the biggest bond house in the world – said it was “interested in plans [for issuers] to issue purpose bonds (green, SDG, social)”. The statement was made in a report published in partnership with the Principles for Responsible Investment on Engaging with Utilities and Global Bank Issuers.

Europe

Barclays has sold €500m of green bonds to finance mortgages for low-carbon homes and residential buildings. Demand reached €1.85bn – 3.7 x supply, and the coupon is 0.625%. It’s the first green bond from a UK bank and Barclays’ Group Finance Director, Tushar Morzaria, said it helped diversify its investor bank and attract interesting from the growing number of ESG investors. The bond has certification under the Climate Bonds Initiative programme, assed by Carbon Trust. The UK’s Minister for Climate Change and Industry, Claire Perry, said the deal marked “an existing moment for the UK market”, adding: “The transition to a clean, low-carbon economy presents a multi-billion pound investment opportunity and we want UK businesses to take full advantage of it.” So far only a handful of green bonds or loans have come out of the country – lagging behind many of its European counterparts. Market insiders said the bank had originally planned to issue in sterling, but had ultimately opted for euros.

Swedbank completed what it described as an “extremely good” debut in the green bond market last week, securing pricing of 7 basis points above mid-swaps for a €500m no-grow offering. The investor book was 2.7x oversubscribed, said Peter Stenborn, Debt Investor Relations Officer at the bank. In the end, 72% of the notes were allocated to green investors. “Timing and market conditions were definitely a driver of the price, but also that it was a green bond,” he told RI. “It’s more difficult when credit spreads are as tight as they were to get that much interest in the order book. If the bond had not been a green bond, we would not have been able to price it as tight as we did. It would probably have been 3 or 4 bps more expensive.” Swedbank expects to issue at least annually in future. The inaugural deal was solely to refinance energy efficiency and renewables loans, but going forward, Stenborn said new loans would also be included for a wider range of green projects. Borrowers will be able to access a better interest rate for projects that qualify as green under the framework. “The whole idea is to make corporates see the benefits of doing green projects, because they can access cheaper financing,” Stenborn explained. Although the framework aligned the projects with the UN Sustainable Development Goal, he said there were no plans to expand into social or sustainability bonds currently. “But I wouldn’t rule that out for the future.”h6. North America

Ottawa became the first Canadian city to issue a green bond, in a C$102m, 30-year deal with a coupon of 3.25%. Proceeds will finance a railway project. Demand was 2.5x higher than the offering, and the final allocation favoured investors with green mandates or signatories to the PRI. Ottawa’s Treasury worked with the bookrunners, RBC and TD, to select those buyers, and 96% of the notes were allocated to them. “The investor base shows that the deal priced tighter because it was green,” Mark Martin, Head of Treasury, told RI. 99% of the bonds were allocated to investors in Canada, and there were 25 investors in total. Following the success of the deal, Martin says he would expect to reopen the bond in future. But it may also create another green bond to finance other projects. “This deal has opened the door for us – there are a number of other green projects we’re working on. I’m now working with our asset management group and our planning and economic development group, and they’re looking for eligible projects. It’s clear that there is investor demand and we’ve got the ball rolling – so hopefully it will open the door for other Canadian municipalities.” He also told RI that the process of issuing green bonds introduced the Ottawa Treasury to the idea of social bonds. “We do public housing,” he said, “so that’s an initiative that could focus around social issuance.”

Australia

According to local media, Queensland’s Premier, Annastacia Palaszczuk, is planning a A$500m green bond programme. The state has already sold A$750m in green bonds, earlier this year, but media outlet The Courier Mail , said the Labour government has made an election pledge to issue more bonds through the Queensland Treasury Corporation as part of its Land Restoration Fund. Proceeds will be used to pay farmers to plant trees which generate carbon credits, according to the report. “If we get these policies right it could be worth $8 billion to Queensland by 2030 as those companies that can’t reduce their emissions to the Paris treaty target seek to purchase offsets,” the Environment Minister Steven Miles is quoted as saying.

Asia

The Hong Kong and China Gas Company is readying itself to issue a green bond. It has created a framework which has been assessed by Sustainalytics. Projects identified as eligible include waste-to-energy and waste utilisation initiatives.

Note: This article was updated to reflect the fact that Barclays issued in euros, not in sterling as previously reported.