In an interesting development for “thematic” bonds, Air Liquide Finance yesterday issued a 9 year, €500m “SRI (Socially Responsible Investment)” corporate bond. Coupon: 2.125%, rated "A Positive Outlook" by S&P. Manager was the ground-breaking Credit Agricole (Tanguy Claquin of course).
The bond’s SRI label is largely because proceeds are to be used for home health units of the company - perhaps the bond should really be called a “health” bond? However, the bond is fully guaranteed by the company, so for credit purposes it’s just an A rated corporate bond.
In contrast to two recent bonds from French regional governments, the bond’s SRI credentials were reviewed by a third party verifier, Vigeo. This third party verification (a feature of the Climate Bond Standards) is a big advance and is to be applauded.
There remains, however, the issue that there is no clear standard for the definition of “SRI”. In Air Liquide’s case, Vigeo conferred the label on the basis of a “43 out of 100” score on the proprietal rating methodology they use.
It’s unclear whether their rating incorporates assurances about use of proceeds. This has been an issue with two recent bonds. One, for Destiny USA, saw US Government Green Bond tax credits awarded on the basis they would be “greening” a shopping centre; they later decided it wasn’t economic to do so. So investors who wanted the green flavour found their bonds weren’t so green after all. Curiously, the IRS decided they could keep the Green Bond tax credits because the scheme only required them to describe not necessarily do what they said they’d do; bizarre.
In the other case, RWE issued a £600m “wind” corporate bond in January, noting that funds would be used for offshore wind farm development. In June RWE announced all that was on hold. Investors who had decided to buy the bond because it was a solid RWE bond plus had good environmental characteristics, were disappointed. Of course RWE has other wind investments so you can argue those assets could be linked to the funds, but you get the risk for the brave SRI investor.
Air Liquide's bond doesn't necessarily have these issues, however, and it's a very useful step towards getting a market going.
(In case you hadn’t picked this up, the Climate Bonds Standard when applied to corporate bonds has strict provisions requiring the matching of assets to funds raised.)