Nov review 1/7: newbie FMO tries a EUR500m Sustainability Bond

The month was kicked off with a bond from a new issuer to this space - the Dutch development bank FMO (Financierings-Maatschappij voor Ontwikkelingslanden). They issued a EUR500m “Sustainability” Bond to support the financing of ‘green and inclusive finance projects’. This includes renewable energy, energy efficiency, responsible agriculture, food production, transport, waste supply and access as well as microfinance. So pretty broad then.

 

The broad array of potential investments is great. We’ve been saying for a while now that climate investments are about so much more than just energy, so the fact this bond recognises the role that all sectors play in a low carbon economy is fantastic.

Problem is, it’s not so clear how they’re defining some of the areas - ‘responsible agriculture’ is one such area. Similarly, some water and agriculture investments can be negative in terms of addressing climate (e.g. water treatment can be highly energy intensive) and it isn’t clear in FMO's offer materials that their exclusion criteria address these issues. Another niggle is that the criteria around energy efficient retrofits includes lending to “improving of power plants and power infrastructure and cogeneration”. Our worry is that this leaves open the inclusion of fossil fuel fired power plants. We do know that FMO has been out of the coal-fired power lending game for awhile, but they do still have loans on their books for retrofitting at gas-fired power plants – we’re reasonably sure they exclude these, but it would be great to be clear.

FMO is a blue-chip development bank, and everyone will be very comfortable with the credibility of their approach in terms of climate; but to help grow a larger market it would be great to provide better definition around inclusions. Next time perhaps.