Nov review 7/7: NRW wraps up the month with a EUR250m green/water bond ... but ain't no standards

The month ended with the German State of North Rhine-Westphalia (NRW) bank successfully issuing a AAA Green Bond to refinance ‘environmentally friendly water and energy projects’ in the region. This includes the ‘renaturation’ of the Emscher river, water management boards in the state, as well as their reservoirs and water treatment plants.

 

On the demand side, the good news is that more than half of the investors were totally new investors – a useful anecdote to share with potential issuers.

The bad news was that NRW decided to issue the bond without 3rd party certification or even linking to accepted criteria (as proposed by the Green Bonds Framework, for example). The better news is that as this is all refinancing – all the projects were identified to investors during the roadshow.

We assume that the investors who bought the bond are qualified to make a call on whether the projects are green or not, but we also think using external standards on water is especially important given the tricky nature of water investments. The provision of clean water is an important social goal, but from an environment/climate perspective water treatment can be highly energy-intensive and not really a green investment at all. We’re not saying this is the case with NRW, but we can’t be sure either way because there would not seem to be easy access to details of what's in the bond.

--------

So it was a big month for "labeled" green bonds, with a 50% rise in bonds outstanding. Various bankers have been saying it was a tipping point, and we'll no see a lot more. I suspect they're right.

To ensure  this market doesn't fragment and the deflate like a failed soufflé, we  reiterate the need for:

  • Transparency around specific assets involved and around criteria for inclusion.
  • Linkage to credible and standard definitions.
  • Third party review.
  •  

Until the next crop ....