FMO yesterday issued a EUR500m, 5 year, “sustainability bond”. FMO's credit rating- and the bonds - is AAA (negative outlook) from S&P. The coupon (interest rate) was 15 basis points above "mid-swaps".
FMO is the EUR6.3 billion Bilateral Development Bank of the Netherlands. It’s an interesting beast, 51% owned by the Dutch Government, with the rest owned by the big three Dutch banks and a small slice by trade unions, employer associations and motley others.
Lead managers were Rabobank (an FMO shareholder), Credit Agricole CIB and JP Morgan.
Sales were very brisk, with the bond fully subscribed within an hour of opening for bids. Congratulations all round!
The bond proceeds are reserved for financing “green projects” and other projects that fit under FMO’s “Sustainability Bonds framework”.
Our understanding is that FMO looked at a bond linked only to their renewable energy and energy efficiency lending program, but were concerned they didn’t have enough loan flow to be certain they could allocate the proceeds, so widened the criteria of loans in the pool to make sure they could cover the bond.
The risk was that this might confuse investors; but the quick sale suggests there was little concern.
In terms of helping to grow a broader green and climate bonds market we do have some niggles: the stated criteria around lending to energy efficient retrofits, for example, includes lending to “improving of power plants and power infrastructure and cogeneration”. Does this include fossil fuel fired power plants? The FMO information doesn’t say, although according to their web site they have previously made loans to retrofitting and expanding capacity at gas-fired power plants. We’re assuming coal-fired power plant retrofits are excluded as FMO has been out of that space for awhile, but it isn’t 100% clear.
They also include investments in things like “responsible agriculture” and “water projects”, but it’s not clear how they set criteria for these, and whether those criteria are consistent with, for example, a climate change frame. Some water and agriculture investment can be negative in terms of addressing climate; FMO's exclusion criteria doesn't cover this issue.
Finally, microfinance institution loans are included, which is probably all good, but there is no detail on the nature of those microfinance institutions of the type of on-lending they do.
FMO are a very trustworthy organisation with some wonderful programmes, and we stress that there’s nothing to suggest their actual pool of projects isn’t green or “sustainable” (now that’s a much abused word); we’d just like to see the statements of criteria tightened up.
They have promised detailed reporting - so we’ll be able to track. But it would be great if they could also help develop a broader market that will bring in corporate issuance – and that needs support for common standards around where the money goes.
Nevertheless, Bravo FMO!
