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.
While we knew the bond was in the pipeline, we didn't quite expect a EUR1.4bn bond ($1.9bn) and it could have been bigger! Apparently it was two times oversubscribed.
This bond shifted the market firmly away from the AAA space and demonstrated that there is plenty of demand further down the ratings scale to A+.
Bank of America Merrill Lynch (BAML) joined the list of first corporate entities to issue a labelled green bond, and set a new model for commercial banks. We're expecting this to be the beginning of a long line of commercial bank green and climate bonds.
The detail:
Swedish property company Vasakronan was the first of the three corporate green bonds issued in November. This bond was linked primarily to housing assets with LEED gold status or BREEAM ‘very good’.
The Norwegian development bank Kommunalbanken (KBN) followed swiftly behind the heels of the IFC with a $500mn bond to finance ‘climate friendly’ projects. KBN provides low cost finance to the local government sector in Norway. The eligibility criteria are determined internally, but the bond was reviewed by Oslo climate science research centre, CICERO.
From new issuer to an old faithful, the IFC issued the second bond of the month, which was also their second USD1bn bond in 2013. The first USD1bn bond was a watershed moment in the green bonds market as its size stirred a great deal of interest from both investors and underwriters. This second bond was apparently priced and sized in response to market demand – which is a great signal of market demand for this type of product. Rumour has it that they’re planning a further few billion per year in the future.
The month was kicked off with a bond from a new issuer to this space - the Dutch development bank FMO (Financierings-Maatschappij voor Ontwikkelingslanden). They issued a EUR500m “Sustainability” Bond to support the financing of ‘green and inclusive finance projects’. This includes renewable energy, energy efficiency, responsible agriculture, food production, transport, waste supply and access as well as microfinance. So pretty broad then.
It’s been a crazy month for “labelled”* green bonds. At the beginning of the month, there was approximately $10bn outstanding (just under $13bn has been issued but some matured) consisting of mostly of AAA multi-lateral development banks and (depending on how you count) a few municipalities.
Now, as November closes, we’re looking at approximately $15bn outstanding with the first few corporate issuances released! One month on and it’s a different world. Here is a brief summary:
A successfully placed 19 year, £305.14 million ($496m) bond to fund the acquisition of a large offshore wind energy transmission connection shows how the EIB’s Project Bond Credit Enhancement Initiative can make a real difference.
Climate Policy Initiative has launched a useful Climate Finance Landscape web site.
Key finding: climate investment plateaued at $359 billion in 2012, far short of the need. In contrast, the IEA projects that an additional investment of $5 trillion (above business as usual) is required between now and 2020 for clean energy alone, to limit warming to 2°C. Work to do.
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Some useful facts from a cracker of a presentation by IEA's Philippe Benoit:
