Poland out the gate early for 2017's Year of Green Sovereign Bonds
Poland has just won the race to become the first ever sovereign to issue a green bond with a EUR 750m bond financing a range of climate-related projects.
The race to issue the first sovereign green bond was initiated by France when it announced, way back in April, that it would be issuing in 2017. Then there were a series of announcements from Morocco, Nigeria, Sweden and Kenya all foreshadowing action next year.
Climate Bonds has six or seven countries listed in our notebook for issuance and Poland wasn’t part of that competition until just 2 weeks ago. Now, surprise, here it is!
The bond details
Proceeds will finance and refinance projects that contribute to Poland’s progress in meeting its greenhouse gas emission (GHG) reduction targets and promote the country’s transition to a low carbon economy.
A pre-issue demand of EUR 1.5 billion (from 91 accounts) allowed Poland's Ministry of Finance to increase the size of the issue from a mooted EUR 500 to EUR 750 million - yes, that means they had three times the number of orders they needed.
According to their Green Bond Framework, the bond will finance:
- Renewable Energy generation and manufacture of components: wind, solar, tidal biomass
- Waste biomass only
- No biomass cogeneration in coal power plants will be included.
- Clean Transportation: rail infrastructure new and upgrades, electric rolling stock etc. No rail investment to shift coal will be included.
- Sustainable Agricultural Operations: organic farming, more efficient farming methods.
- Afforestation: new forests and forest maintenance.
- National Parks: conservation and restoration of natural habitat, educational activities to enhance awareness, encourage environmental care.
- Reclamation of heaps: remediation of contaminated land, soil remediation.
Specific exclusions: nuclear power, fossil fuel power and transportation, palm oil, hydro projects larger than 20MW, transmission infrastructure where more than 25% electricity is from fossil fuels.
A detailed review from Sustainalytics is available here. The underwriters were HSBC, JP Morgan and PKO Bank Hipoteczny.
How green is the bond?
For the most part, the detail provided is good. Both renewable energy and transport have clear and strong climate benefits and the clarification provided on biomass (waste only, no cogeneration with coal) and rail (no fossil fuel transport, electric rolling stock only) gives us a great deal of comfort around these assets and we welcome the level of disclosure.
Land use change through deforestation is a primary cause of climate change; afforestation balances that and helps with CO2 sequestration. Of course, while forests are a store of carbon they can be an unstable one - prone to fires, logging and changes in ownership. Keeping coal in the ground, on the other hand, is very stable and effective way to store carbon. We hope that afforestation efforts will be complimented by equally diligent efforts to keeping coal where it now belongs. In the ground. Just saying.
For sustainable agriculture, we’re uncertain what is meant by ‘more efficient farming methods’, but if this falls within best practice in agriculture then there should be no issue.
National Park conservation, land remediation and reclamation are all valuable projects from an environmental perspective. We note that their climate impact (which is Poland’s stated purpose of the bond, i.e. to finance projects that help it meet its GHG emission targets) will probably be low but it will still have positive local environmental impacts.
This is a green bond in the context that the assets are green and, as we’ve always said, green bonds are about green assets not green entities.
But it is worth remembering that Poland doesn’t exactly have an exemplary record on climate. Despite their attestation in the Green Bond Framework that the country “has increasingly become recognised as a progressive example among sovereigns transitioning to a low-emission economy”, Poland has an economic base in coal, a notably lukewarm attitude to EU climate action, a reputation for denying climate science and hampering climate negotiations.
So, we need to exercise some caution - highlighting small green projects while continuing to increase investment in much larger fossil fuel projects is something we will always call out, particularly if raising funds through a green bond releases funds for fossil fuel investments. In this case, the positive environmental impact of the above projects will be completely negated if investment in fossil fuels continues.
Unfortunately Poland has indicated that it will continue to be a coal nation and the ruling party has done little to change that perception.
A Just Transition is needed
We hope that this is the sign of a major shift in Polish policy to a low carbon and climate resilient economy. We also recognise that there must be a just transition for workers and regions currently dependent on coal and this issue is wider than Poland, as Sharan Burrow and the ITUC keep reminding the world.
To the extent that this bond does mark a shift within Poland to building more green infrastructure, being productive at climate negotiations and transitioning to a low carbon economy – we will be unabashedly enthusiastic and supportive.
We will, however, continue to press the government for further plans to grow a pipeline of green investment and we expect investors to do the same.
This will ensure that this deal is not a one-off (or greenwashing) and that it brings increased scrutiny to Polands’ NDCs and energy policy, rather than deflecting attention from fossil fuel plans.
Well done Poland for being the first!
Come on Poland, let this be the start of a much wider and deeper transition.