Investors pile into Saudi PIF green bond despite ESG concerns

Sovereign wealth fund raises $3bn from triple-tranche deal, including 100-year note.

A debut green bond from Saudi Arabia’s Public Investment Fund (PIF) attracted more than $22 billion of orders on Wednesday, even as the ESG world issued warnings about its sustainability credentials.

PIF sold $500 million of 100-year bonds – one of the longest-dated green structures on record – as well as $1.25 billion each of five and 10-year bonds. Twenty-eight banks participated in the deal, led by BNP Paribas, JPMorgan, Citi, Deutsche Bank and Goldman Sachs.

The Saudi sovereign wealth fund has more than $600 billion in assets, including a 4 percent stake in Saudi Aramco and 80 percent ownership of Newcastle United football club. An investor presentation seen by Reuters last week claimed that it plans to invest more than $10 billion in green projects by 2026.

However, the credentials of both the bond and the issuer were questioned by investors and campaigners.

Germany’s Union Investment, which runs a €130 million dedicated green bond fund, said that Saudi Arabia was excluded from its sustainable funds as the country is classified as not free. “Not free is a knock-out criterion for us, regardless of a green or social bond,” it said.

Responsible Investor understands that at least one large European manager stayed away from the deal over concerns about the issuer’s ESG characteristics.

Ulf Erlandsson, CEO of the Anthropocene Fixed Income Institute, said in a research note that the deal provided “zero additionality” and “should be viewed as a marketing exercise”.

“The optics of climate-aligned Saudi government issuance are challenging to begin with,” he continued, “and at closer examination, it is even more difficult to consider this issuance as genuinely green.”

Saudi Arabia itself is currently aligned with 3 degrees to 4 degrees of global warming and the pool of PIR assets that would be shared with investors in case of default includes its stake in Saudi Aramco, Erlandsson noted.

The issuer’s A and A1 ratings from Moody’s and Fitch are tied to the Saudi sovereign rating. An April note from Fitch warned that oil dependence in the country remains a rating weakness, with oil revenue accounting for 60 percent of total budget revenue – although this has markedly decreased from 10 years ago.

The bond was issued under PIF’s green financing framework, which allows for allocation of proceeds towards six areas including renewables, clean transport and sustainable water management. The framework received an SPO from DNV, which confirmed its alignment with the green bond principles.

Blue bond bonanza

Elsewhere in the ESG-labelled market, Wednesday also saw the launch of two blue bonds from the investment arm of the Inter-American Development Bank and an Ecuadorian bank.

The IDB Invest bond, an A$38 million (€25 million; $25 million) deal, was privately placed with Taiju Life Insurance Company. Meanwhile the International Finance Corporation is set to buy up to $40 million of a planned $79 million of a blue bond issue by Banco Internacional. The deal will be the first private sector blue bond from Latin America, as well as a debut issue for Banco Internacional.

The IFC said it planned to work with Ecuador’s financial regulator to create a market for blue bonds in the country, which gains 1.5 percent of its GDP from the fishing industry, hoping to expand the label to other countries in the region.