A $500m (€370m) “green bond” floated by Kommunalbanken (KBN), a Norwegian bank that provides funding to that country’s municipalities, was nearly twice oversubscribed, with 58% of the demand coming from leading institutional investors.
Proceeds of the three-year bond, which is rated ‘AAA’ and offers an annual coupon, or interest rate, of 0.75%, will be used to finance the climate protection efforts of municipal governments in Norway.
It comes as insurance giant Zurich signalled its appetite for taking on more green bonds.
KBN said that just prior to the sale of the bond on November 13, it had accumulated $840m in orders from 40 institutions. They included such responsible investors as AP2 and AP4 of Sweden, the California State Teachers’ Retirement System (CalSTRS), US asset manager Calvert and US financial services firm TIAA–CREF.
The green bond is KBN’s first directed solely to institutional investors. Said Vishal Khanduja, portfolio manager at Calvert: “We are excited to participate in the inaugural US dollar green bond issuance from KBN. The bond complements our responsible investment strategy of the newly-launched Green Bond Fund.” KBN has also raised $300m for communal climate protection efforts via the prior issuance of 14 bonds for retail investors.
Including the African Development Bank, central banks accounted for 28% of the subscription to the new offering. Banks made up 23%, followed by corporates (20%), asset managers like Calvert, but also State Street Global Advisors (SSgA) and Nikko of Japan (17%).Bookrunners for the bond were Bank of America, Citigroup, Morgan Stanley of the US and SEB of Sweden.
In related news, Swiss insurance giant Zurich said it would – over time- invest another $800m (€591m) in green bonds to be issued by the World Bank, the International Finance Corporation (IFC) and other development bodies.
This is in addition to the $200m in green bonds that Zurich already holds from those issuers. The proceeds from the green bonds issued by these development banks are used to fund projects that mitigate the effects of climate change.
Zurich did not specify when the additional $800m would be invested. “Zurich will fund the green bond mandate over time. The time it will take to invest the targeted amount will depend on market supply and pricing,” said the insurer, which has outsourced management of its green bond investments to BlackRock.
Zurich added BlackRock would primarily seek to acquire green bonds at issuance. It noted that finding the appropriate bonds in the secondary market would prove difficult because of the number of ‘buy-and-hold’ investors.
Zurich also said that its entry into the green bond market would stimulate more institutional investment in the asset class. “We think our entry is a sign that the segment is gaining support among a broader range of institutional investors,” said the insurer.