Following a very positive few weeks for green bonds on the international stage, research from NGO BankTrack covered by RI this week has been a stark reminder of the risks around project selection and perceived ‘greenwashing’ in the market. The research relates to a green bond issued last year by Import Export India, which BankTrack claims has helped finance a train line that will carry coal from a very controversial coal plant in Bangladesh. See here for the full story. At the same time, there have been a number of moves from players like the EIB, Luxembourg Stock Exchange and ICMA to improve disclosure in the market.
Europe
Most issuance this week has come out of Europe, which has seen a series of benchmark issues, reflecting the growing maturity of the green bond market.
Finland launched its first ever green bond with a $500m, five-year, 1.375% deal from financial institution Municipality Finance Plc (MuniFin). The AA+-rated firm is the third largest financial institution in the country, and specialises in financing the public sector. Head of capital markets Esa Kallio said the transaction attracted “a very large number of new investors who have not invested in MuniFin before”, with 22% of buyers coming from the Nordics, 42% coming from the rest of Europe, 29% from the Americas and 7% from Asia Pacific. Kallio added that MuniFin planned to return to the market “frequently” from now on. The proceeds are earmarked for lending to projects “that have a clear and measurable environmentally friendly impacts”, according to MuniFin, who will offer borrowers under the programme “a slightly smaller margin that others” on loans.
The European Investment Bank extended its yield curve for green bonds by issuing a 21-year Climate Awareness Bond this week, bringing its total issuance under the programme to €15.1bn. The €500m deal pays 0.5% and adds to a yield curve that previously comprised three-, seven- and 10-year benchmark offerings. Aldo Romani, deputy head of euro at EIB’s capital markets division, told RI that interest in the deal was high – partly due to the current low-rate climate, but also because of the bond’s long-dated tenor. The maturity resulted in a higher proportion (38%) of asset managers taking the notes compared with previous CABs. German investors took 25% of the notes, while French buyers took 21%, Dutch 18% and UK buyers 15%. The EIB also recently issued its second Canadian-dollar CAB, with a five-year C$500m transaction with a coupon of 1.125%.
In anticipation of the imminent launch of the International Capital Markets Association’s Green Bond Principles ‘resource centre’ – where issuers can post their green bond documentation, to make it easier for investors to find relevant information – the EIB also stepped its disclosure up this week. Already a leader in the market, and one of the leaders on an initiative to harmonise green bond impact reporting measurements, the EIB has now hired KPMG to produce a ‘reasonable assurance report’ on the bank’s CAB programme – a step up from ‘limited assurance’, which is what has been performed so far in the green bond market. Eila Kreivi, head of the EIB’s capital markets department, said the report illustrated the “trustworthiness” of EIB’s green bonds, and that it had stepped up its assurance in order to “show the way with regard to disclosure, reliability and standardisation”, to help grow the market.Société Générale priced its €500m five-year Positive Impact Bond last week, at 0.125% – the lowest coupon the bank has ever had for a bond of that maturity.
The Luxembourg Stock Exchange launched what it claims is the first platform for green financial instruments. The Luxembourg Green Exchange (LGX) is designed to house a number of ‘green’ asset classes, a spokeswoman for the exchange said, but will initially list only green bonds, “as this is the product for which strong principles have been put in place”. “Similar standards are being validated by the industry for sustainable/social bonds which let us think the platform could be extended to these securities in the future. Obviously, ESG funds and ETFs could also fit in the platform once standards of transparency get a bit more mature.”
The platform will only be accessible to issuers who comply with “stringent eligibility criteria”: green bonds, for example, will have to be self-labelled, with an appropriate use of proceeds, have some kind of third-party assessment and commit to post-issuance reporting. This is the strictest criteria to accompany a dedicated green bond segment, according to the spokeswoman. Other, similar segments include Oslo, London and Shanghai – all of which have eligibility requirements, but none demand as many as LGX, she explained. Not all of the 114 green bonds already listed on Luxembourg’s main exchange have been admitted to the platform. “We already know that some green bonds listed on LuxSE do not comply with our disclosure criteria and cannot be admitted to LGX; for some others the scrutiny is still ongoing,” the spokeswoman said.
French asset manager Humanis Gestion d’Actifs has said its €175m of investments into green bonds saves 245,000 metric tons of greenhouse gas emissions every year. Research done by Trucost shows that for every €1m invested by the French asset manager saves 1,400 metric tons annually. Humanis invests in euro-denominated green bonds via a dedicated green bond fund. As a result of the analysis, Humanis has managed to secure a Transition Ecologique et Energetique pour le Climat (TEEC) label from French certification company Novethic. Humanis’ Head of Responsible Investment, Gregory Schneider Maunoury, said that “quantifying the actual environmental impact of a green bond is becoming key” for asset managers.
Latam
Mexico City Airport Trust saw its inaugural green bond 6.5 times oversubscribed when it came to market with a mammoth $2bn deal to finance the development of a new airport. The transaction was in two tranches: $1bn of 4.25%, 10-year notes – bought primarily by US (65%) and European (24%) investors, as well as Asian (6%) and Latin American (5%) – and a 30-year 5.5% offering, on which investor demand reached 400% of available notes. The regional split on investors was roughly the same. Both tranches are listed on the Singapore Stock Exchange. The proceeds will be used for a broad range of projects, including energy efficient buildings and hardware.
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