Climate Bonds Initiative

Mobilising debt capital markets for climate change solutions

[climatebonds]

Weekly Update: EIB EUR400m ($450m) GB @negative rates! / India’s 1st GB from YesBank closes @INR10bn ($161m), 2x initial / DeutscheBank makes EUR1bn GB commitment / North Rhine-Westphalia brewing / Thai Govt oilco to issue GB

EIB taps EUR400m from 2019 AAA Climate Awareness Bond — and prices at a negative yield!

Not to be outdone by last week’s flurry of World Bank green bonds from across the pond, the European Investment Bank (EIB) flexed its Climate Awareness Bond muscle on Wednesday by tapping its recent 5 year bond for a further EUR400m (link is external) ($450m). That takes the bond up to a total of EUR3bn issuance, the largest outstanding green bond around. This is the EIB’s second green bond of 2015 (link is external).

The EIB is rated Aaa/AAA/AAA (Moody’s / Standard and Poor’s / Fitch). The tap carries a coupon of 1.375%, which is effectively a negative interest rate of 0.026% when compared to inflation expectations! This is the first EIB green bond negative rates. The negative yield is still eight basis points more than is currently available from German government bonds of similar maturity. The Financial Times has a useful explanation (link is external) of the attraction (!) of negative yields.

Joint Bookrunners were Crédit Agricole CIB, Credit Suisse, Nomura and Standard Chartered.

The transaction was announced the day EIB’s 2014 results were released — last year the bank dedicated over EUR 19bn, or 25% of its total lending, to climate action.

Strong demand for Yes Bank’s inaugural green bond doubles issuance to INR10bn ($161.5m) + even then it was oversubscribed! 10 year, 8.85% coupon, AA+ local rating

India’s fourth largest bank, Yes Bank, completed the country’s inaugural green bond this week. Originally planned for INR5bn, strong demand allowed them to double its size to INR10bn (IFR Asia reports that it was still oversubscribed at this higher amount). The bond is rated AA+ from local rating agencies Care and Icra (roughly equivalent to BB+ internationally). It has a coupon of 8.85%. Yes Bank arranged the deal in-house.

There were 15 to 20 investors involved, ranging from domestic (Indian) Insurance Companies, Pension and Provident Funds, Mutual Funds and one international investor.

Proceeds will go towards renewable energy and energy efficiency projects. Some examples are solar, wind, biomass and small hydro projects.

As mentioned in our previous blog, there is no second opinion provided on the green credentials of the use of proceeds – at this stage. However KPMG will provide reporting on the allocation of proceeds annually which at least will show investors what projects are being funded.

Deutsche Bank increases its portfolio commitment to liquid green bonds to EUR1bn

Deutsche Bank announced its intention (link is external) to invest EUR 1 billion into a portfolio of high quality liquid assets in the form of green bonds. These will be held as part of the Bank’s Liquidity Reserve investments. Deutsche Bank (link is external) has already made EUR 200 million in eligible Green Bond investments and plans for this portfolio to reach EUR 1 billion.

Market gossip

Green bond from North Rhine-Westphalia

North Rhine-Westphalia (link is external) is the most populous state in Germany, as well as the fourth largest by area. It's still not clear whether it's a green bond or an "SRI" bond; whichever, it'll be the first from a German State.

Green bond announced by Thai state-run oil company Bangchak

The other gossip this week is that Government-run Thai oil company Bangchak (link is external) is planning to issue Thailand’s first green bond (link is external) next month – and what would be the first corporate green bond from an oil company.

While at first blush this would seem worrying, the company does have a big portion of its business directed towards solar (link is external) and biofuels, and the proceeds of the bond will be directed accordingly.

The concern for investors will be around the allocation and reporting of proceeds — they will be looking for confidence that the bond is in fact funding green and not brown assets. Independent verification would be very useful here, or even certification against our soon to be launched Climate Bonds bioenergy standard.

[climatebonds]

There is a potential for China and its cities to take a global leadership role in the face of the enormous environmental challenges. Read more on p. 65 http://en.calameo.com/read/0033299725381b512911f

[climatebonds]

Today in New York: a discussion roundtable for legal practitioners on legal issues associated with green bonds!

Today in New York we’re running an invitation-only legal counsel roundtable on the current state of legal practice around green bonds.

Moderated by Climate Bonds Senior Fellow Motoko Aizawa and kindly hosted by Shearman & Sterling.

Topics: what are the issues in making sure green promises are being fulfilled? Are green assertions vulnerable to legal challenges? If so, what can the legal practitioner do? We’ll publish a report afterwards and do a London version later in the year.

For more upcoming Climate Bonds talks see: http://www.climatebonds.net/media/events

[climatebonds]

Watch: Climate Bonds CEO interviewed by Andrew Bell at Canadian Business News Network. The global green bond market is expected to surpass over $100B in 2015. Sean Kidney, Chairman & Co-Founder, Climate Bonds Initiative, says investors are snapping up the debt, which helps pay for planet-friendly projects, because they don't have to give up yield but do get to support investments that help the environment.

[climatebonds]

Big week for green bonds: World Bank issues its longest ever tenor & its biggest ever green bond in same week. Also: Vasakronan, YES Bank and green bonds in EU Capital Market Union green paper

Big news from the World Bank this week with two green bonds issued: the first is a long 30 year tenor for insurance giant Zurich and the second is the World Bank’s biggest ever green issuance of $600m. Repeat issuance seems to be the theme of the week with another green bond from Swedish property company Vasakronan.

Namaste to India’s Yes Bank who announced they too would be issuing green bonds this week; it’s the first India green bond - exciting! For more details and a market update from Delhi check out the latest blog. The US city of Tacoma announced a $21m green municipal bond for the city’s waste management programme. The disclosure is fairly limited about the use of proceeds so we will fully cover this bond when we get our hands on this information next month.

In policy news, green bonds made it onto the agenda for the European Capital Markets Union green paper, which was officially launched this week.

Development Banks

Longest ever World Bank green bond with 30 year tenor – designed for Zurich Insurance Group; EUR 30m ($34m),  AAA, 1.0325% coupon

The latest EUR30m ($34m) World Bank green offering matures in 2045 making it the World Bank’s longest tenor green bond.  It was designed to meet the requirements of the sole investor in the bond, Zurich Insurance Group. The bond has a fixed annual coupon of 1.0325% and is rated AAA. As with all World Bank green bonds CICERO provided a second opinion.  Morgan Stanley was the underwriter for the deal.

DC Water’s 100 year green bond retains its crown as the longest tenor green bond to date. But, this new World Bank 30 year green bond beats all other green offerings in terms of tenor – the next being EIB’s 25 year Japanese green bond last March. Green bonds with long maturity dates are important for market development as institutional investors with long dated liabilities look to fill portfolios with green investments.

Having issued green bond for CALSTRS and California State, the World Bank has a track record of working with investors to design green products to fit the investor’s specific needs. IFC, the private finance arm of the World Bank has also done this: last year IFC issued a green bond in Peruvian Soles specifically for Peru’s leading insurance company RIMAC Seguros. Insurance companies have long liabilities and look for investments with long maturity dates in local currency.  This latest offering from the World Bank does just that with a 30 year tenor in euros.

Biggest ever World Bank green bond $600m; 10yr, AAA, 2.125% semi-annual coupon

The World Bank also issued a large $600m green bond this week with a still lengthy 10 year tenor (actually the longest tenor in USD from a World Bank green bond). The coupon is semi-annual fixed at 2.124% and the bond is rated AAA by S&P. As with all World Bank bonds CICERO provides the second opinion on green credentials. Deutsche Bank, Morgan Stanley and SEB are the lead managers in the transaction.

According to a press statement the World Bank’s green bond programme continues to attract new investors – fantastic for such an established programme! Though some of the usual suspects of staunch green bond supporters, such as AP2, AP4, Blackrock, Mirova and Nikko Asset Management, were also part of the 25 investors in the green bond.

The majority of the deal was taken, as expected, by investors in the Americas (39%) and Europe (28%), but it’s great to see around a third go to investors in Asia (16%) and the Middle East and African (17%).

Corporate

Seventh green bond from Vasakronan; SEK 120m ($14.2m), annual coupon 0.37%, 3yr, BBB+

Swedish real estate company Vasakronan issued yet another green bond this week taking its total issuance to $588m over 7 bonds. The latest SEK 120m ($14.2m) green bond has a fixed annual coupon of 0.37%. CICERO provided a second opinion and Danske Bank was the lead manager of the deal.

Vasakronan was one of the first corporate green bond issuers back in November 2013, and it has committed to reporting on both the use of proceeds and the green impacts of the bond through annual investor newsletters – brilliant! An example newsletter is publicly available, however, it’s not clear whether such reports will be available to the public going forward as no other more recent newsletters are listed on their website. Nevertheless, it’s great to see an issuer following best practice and disclosing key information to investors. Bravo Vasakronan!

Market Developments

Policy - Green bonds included in the EU Capital Markets Union green paper

On Wednesday the European Commission officially launched its green paper and public consultation on building a Capital Markets Union (CMU), a priority area for the Commission to boost growth in Europe. What’s really exciting is that the recent green paper reveals that green bonds are explicitly on the agenda as part of the Capital Market Union reforms, as the draft documents that emerged in January suggested. In fact, the consultation document asks about steps the EU might take to support the development of green bonds. Many of the other priority areas for the CMU presented in the green paper are also relevant for green bonds, as we explored in the previous post (and will cover in a upcoming BusinessGreen article). We look forward to seeing what measures for green bonds make it into the CMU action plan expected in Q3.

Finally, Danish wind pure-play company Vestas is talking to investors about issuing an inaugural green bond in the coming week so keep an eye on the weekly blogs for more details.

Our blogs are written by a team: Sean Kidney, Tess Olsen-Rong, Beate Sonerud, Katie House, with help from Justine Leigh-Bell.

[greenpeace]

Some of Harvard’s most prominent graduates – from Hollywood star Natalie Portman to environmentalist Robert Kennedy Jr and the scholar Cornel West – called on the world’s richest university to dump fossil- fuel companies from its $36bn endowment.

Harvard’s high-profile alumni join fossil fuel divestment campaign in open letter | Environment | The Guardian (via greenpeace)

[demo]

What is the difference between two degrees (of temperature increase) and four degrees? The difference is human civilisation

Professor Hans Joachim Schellnhuber, Director of the Potsdam Institute for Climate Impact