Swedish real estate services company Fastighets AB Förvaltaren, owned by the municipality of Sundbyberg in Stockholm, issued its first green bond late last week. Förvaltaren have only recently re-entered the bond market after a 20 year gap with a new bond since in the spring this year (SEK350m) - and just a few months later they are issuing green bonds! This shows that you don’t need to be a regular bond issuer to start to issuing green bonds.
The green bond is SEK 400m ($55m) with floating coupon of quarterly STIB +.45 and 5 year tenor. S&P rated the issue AA-. SEB were the book runner for the transaction.
Proceeds will be earmarked in part for the redevelopment of the “‘Banana House’ at Sundbyberg square”, according to a press statement. The overall framework for allocation of proceeds to eligible green building projects has been reviewed by CICERO.
Residential and commercial buildings, new or refurbished, must meet a recognised green building standard. The level required is:
- Miljöbyggnad (a Swedish green building standard) - minimum “silver”
- LEED - minimum “gold”
- BREEAM SE (operated by the Swedish Green Building Council under licence from BRE Global)- minimum “very good”
We've previously commented on the merits of LEED and BREEAM SE. Miljöbyggnad certification is a Swedish building certification which “is more detailed than LEED or BREEAM SE in some aspects such as the calculation of energy efficiency” according to the CICERO report.
While it's good to see recognized standards being used for green buildings, the view of our international expert panel is that it's the performance of the building in relation to a local baseline matters.
Highly rated LEED is a reasonable proxy while emissions reporting is being developed; but it’s important to understand the issue. As John H. Scofield found in his recent ScienceDirect paper “Efficacy of LEED-certification in reducing energy consumption and greenhouse gas emission for large New York City office buildings, there is little correlation between building emissions performance and Silver or Basic LEED; but there is some correlation for Gold LEED. This is not a new finding. LEED of course addresses all sorts of very useful issues in relation to environmental performance; but wearing our climate change urgency glasses, we are concerned that ambitious emission reductions are part of any inclusion as green – that leads us to be generally supportive of LEED Gold and Platinum buildings being included - for example last week’s MIT bond and this bond - although we will be pushing hard for emissions reporting hurdles to be met to ensure the buildings contribute emission reductions.
Förvaltaren have covered performance issues by including a caveat that buildings must also achieve “25% less energy usage than required by applicable codes and regulations” (CICERO report). The hurdle rate is a good addition to the criteria.
Förvaltaren have committed to reporting through annual newsletters. Included in the report will be a list of projects financed and examples of projects. This transparency allows investors to see how proceeds are allocated. We hope there will also be details of each property energy performance in the newsletter.
