Development Bank of Japan (DBJ) has issued the first green bond from a Japanese issuer; EUR 250m with a 0.25% coupon and 3 year tenor. Moody’s and S&P have rated the bond Aa3 and A+ respectively. The bond was over three times subscribed – EUR 750m! – making it clear that there’s strong investor demand for Japanese green bonds. Underwriters were Bank of America Merrill Lynch, Morgan Stanley, Citi and Daiwa. The Second Opinion was by DNV-GL.
Proceeds of the bond are allocated to a pool of five green buildings, a defined by DBJ’s own Green Building Certification scheme. The scheme includes elements of energy efficiency, water conservation and water recycling as part of a holistic sustainability review of the building, including social and disaster prevention/control considerations.
Green retail “Uridashi” bonds in Japan kicked off the green bonds market, but to date there has been no domestic Japanese issuance. We’re hoping DBJ’s bond will excite the domestic market, showing corporates that there is institutional investor appetite for green bonds as well as the demand from domestic retail investors. Our view is that there is significant potential local demand; it just needs to be illustrated.
For its bond DBJ has selected a portfolio of five top performing buildings, based on the DBJ green buildings certification system. The asset allocation process is set out clearly in the second opinion document from DNV-GL and includes details of loan nomination and temporary holding of funds waiting disbursement. Transparency on the process is important for investors’ to have confidence that funds are earmarked for green projects.
Buildings must also be certified to a recognised standard and the second opinion from DNV GL indicates buildings must be BREEAM, LEED, CASBEE or Tokyo Metropolitan Government approved - but there doesn’t seem to be a set level of certification required i.e. LEED basic or gold. That should be addressed. However DBJ have committed to reporting on the ongoing performance of the buildings, which will provide more insight into the environmental benefit of the investment than a one-time certificate snapshot view.
We do have a concern that the green characteristics are self-referential – i.e. based on DBJ’s own scheme, which only has a couple of data points out of 17 that relate to emissions reduction. Linking to, say, Tokyo emissions trading scheme metrics would be good; it may in fact be in there. We would like DNV to provide for public consumption a review DBJ’s own framework; that may come yet.
Of course DBJ is a blue chip institution; the trust is there. The challenge now is to design further issuance to maximise the replicability of the bond to, allowing it to be a demonstration for corporate issuers –a vital role for public sector issuance.
The important thing is that DBJ has broken the Japanese green bond drought!
ブラボーニッポン！
