Green Bond Pricing Report for Q3-Q4 2018

No7 in series 

The “Green Bond Pricing in the Primary Market” report, marking the period July-December 2018 is now available.

The report monitors the performance of 24 EUR and 10 USD denominated benchmark size green bonds with a total value of USD29bn issued during H2 2018.

For this report 24 EUR (to the value of USD21.5bn) and 10 USD (to the value of USD7.5bn) labelled green bonds issued in H2 2018 were analysed, with 18 out of 34 bonds from repeat issuers. Among the 16 debut issuers were the Republic of Ireland, Société du Grand Paris, Terna, and Royal Schiphol Group. Emerging Market bonds from Korea Hydro, Chengdu Nuclear, and State Bank of India also met the criteria for inclusion in the analysis.

The total data pool comprised 33% of the USD89bn of green bonds issued in line with the Climate Bonds Taxonomy during the second half of 2018.

This is the 7^th iteration in a long-term analytical series by Climate Bonds, supported by International Finance Corporation (IFC), commencing with Q4 2016 Snapshot released in early 2017.

“Green Bond Pricing in the Primary Market” includes a special EM section looking at China and guest commentary by Jason Mortimer, Senior Portfolio Manager at Nomura AM, Tokyo, discussing the concepts around ‘greenium.’

Report Highlights:

• Includes USD29bn of benchmark green bonds
• 53% of green bonds were allocated to investors declaring themselves green
• EUR green bonds achieve larger book cover, and slightly lower spread compression than vanilla equivalents on average
• USD green bonds achieve slightly lower book cover, and the same spread compression as vanilla equivalents on average
• 7 days after pricing, green bonds had tightened more than vanilla benchmarks, consistent with prior observations
• 28 days after pricing, green bonds had, on average, tightened by more than matched indices
• Two green bonds priced inside their yield curves in H2 2018 exhibiting greenium. EIB was priced off its green bond curve which sits inside the vanilla curve

Who's saying what?

Peer Stein, Global Head of Climate Finance, Financial Institutions Group, IFC:

“Green bonds will play a vital role in mobilising the capital needed to confront climate change. This joint research with CBI adds to the body of evidence about green bond pricing and shows that issuers and investors continue to see the benefits of green bonds. IFC supports the sector through advisory services and investments, work with regulators, and technical assistance programmes.”

Sean Kidney, CEO, Climate Bonds Initiative:

“The latest report reflects the continued investor appetite for quality green product in the market. We expect this demand to increase as investors increasingly seek to hedge climate risks and look for opportunity. For issuers, structural pressure to accelerate transition will come from processes like TCFD and the wider impact of the Climate Action 100 and other engagement initiatives.”

“As annual issuance in the early 2020s grows towards that critical first trillion, pricing signals will multiply form the initial examples we’ve seen in this and preceding reports.”

Detailed Findings:

On average, EUR green bonds were more oversubscribed, but tightened by slightly less than vanilla equivalents during the pricing process. USD green bonds had slightly less robust book cover and experienced similar spread compression to vanilla equivalents, on average.

This is unusual for USD green bonds, which historically, have performed better than vanilla equivalents during the book building process and may be due to the small number of vanilla bonds suitable for comparison.

Green bonds appear to have performed well compared to matched indices after both 7 and 28 days. When compared to baskets of vanilla bonds, more green bonds are tighter 7 days after pricing, but less than half have tightened by more than vanilla bonds after 28 days. Fewer USD green bonds performed better than their matched baskets in the secondary market, which is consistent with our past observations.

Green bonds attract a range of investors, but on average, 53% of green bonds in our sample were allocated to investors describing themselves as green.

USD green bonds had lower participation compared to EUR but were supported by all types of investors. We reiterate that green bonds are included in all broad market indices, and therefore, most investors have no reason to avoid green bonds.

Climate Bonds built yield curves for 21 out of 34 issuers. Two bonds exhibited a greenium: Terna Elettrica 2023, and EIB 2026, both EUR. EIB 2026 priced off its secondary market green curve, which sits inside the vanilla curve.

Green bond issuers highlight many benefits of issuing green bonds. The enhanced disclosures and monitoring required from green bonds can bring improved transparency which is attractive to investors, and all types of stakeholders.

Spotlight on China

China is the largest emerging markets (EM) issuer in the green bond market and has the world’s third largest onshore bond market. It can be difficult for green bond investors to find suitable opportunities in EM and most green bonds issued from China are issued in Renminbi (CNY) which we do not capture in our pricing work to-date.

In the EM section the report examines some of the features and highlights the opportunities for offshore investors to gain exposure to this rapidly growing investment space via qualified investor schemes, Bond Connect, or directly via the China Interbank Bond Market (CBIM).

Dont miss our guest author: 

Jason Mortimer is a senior portfolio manager at Nomura AM, Tokyo. Jason explores whether green bonds can deliver superior returns, and offer protection from downside risks, and whether this could justify the notion of a ‘greenium.’

'Till next time, 

Climate Bonds 

Acknowledgements: Green bond pricing in the primary market January-June 2018 was prepared jointly by the Climate Bonds Initiative and the International Finance Corporation (IFC).

Support and funding were provided by Impax World Mutual Funds and Obvion Hypotheken. Additional funding was received from the Ministry of Finance of Japan and the Government of the Kingdom of Denmark through the Ministry of Foreign Affairs.

Download the full Q3-Q4 2018 report here.

Previous reports can be found here. 

€7.3bn Dutch residential property fund launches first green bond

Issuance has “helped to attract a broader group of investors with a strong focus on sustainable investment opportunities”

Vesteda is reporting healthy investor demand for its inaugural green bond launched yesterday in Amsterdam. 

The EUR500 million bond is Climate Bonds Certified under the Low Carbon Buildings Criteria and is the second benchmark-sized offering under their EUR2.5 billion EMTN programme and the first EUR green bond by a residential fund.  

More than 6 times oversubscribed, the bond generated ‘gigantic interest’ according to CEO Gertjan van der Baan. Speaking at an IPE real estate conference in Amsterdam he foreshadowed further green issuance and the option of replacing short-term loans with a new green bond.

Focus on residential emissions reduction and achieving energy savings 

In their statement (English/Dutch) Vesteda advise the proceeds of the green bond will be fully allocated to the eligible green assets including 30,000 rental properties and will be used to finance homes with a minimum EPC label A, and homes which have made an improvement of at least two EPC label-steps up to a minimum EPC label C. 

Vesteda will report on the estimated energy savings and greenhouse gas (GHG) emission avoidance of the assets under this green bond.

Who’s saying what 

Frits Vervoort CFO, Vesteda: 

“We are proud that we are the first residential fund to issue a EUR green bond and we are very pleased that the issue was successful. This green bond not only underpins our sustainable strategy but also helps to further strengthen our capital structure, widen our investor group, reduce our cost of capital and improve our debt maturity profile.”

 Manuel Adamini, Head of Investor Engagement, Climate Bonds:

“With its Climate Bonds Certification Vesteda sets the green bar high for sustainable investment in residential real estate, earmarking assets that are verifiably in line with the Paris climate agreement. This is critical to creating a low carbon built environment. We are very pleased with this market leadership made in Holland.”

The Last Word – Zero Carbon is the Buildings Goal 

Expect to see more green building Certified bonds, green loans and other green building investments emerge from Europe. With the release of new baselines for Germany, France, Netherlands, Poland and the Czech Republic there are growing opportunities in the commercial sector as well as residential. 

There’s more detail in our Europe Low Carbon Buildings: Net Zero Carbon is Long-term Goal for Built Environment Blog from late April.

Meanwhile, Vesteda joins ING Group N.V., ABN AMRO Obvion and OVG Real Estate in leading green investment in the 'buildings' space. 

Congratulations! 

‘Till next time,

Climate Bonds 

Partnership with IDB widens scope for green agriculture investment

Climate Bonds Initiative has published Protected Agriculture Criteria under the Climate Bonds Standard.

Under development throughout 2018, the new Criteria have been developed by Climate Bonds in partnership with the Inter-American Development Bank (IDB).

As we make this announcement IDB are simultaneously announcing at the 49th Alide General Assembly, in Madrid.

FIRA first to Certify

Mexican agricultural development bank FIRA (Fideicomisos Instituidos en Relación con la Agricultura), is the first to issue a Certified Climate Bond under the new Criteria, with a MXN2.5bn (USD130m) offering to the market. Congratulations!

What’s protected agriculture?

Initially designated Greenhouse Criteria covering agricultural greenhouses, for clarity, they were retitled to Protected Agriculture Criteria to avoid confusion with greenhouse gases (GHGs).

Unlike most Sector Criteria, at present the scope is limited to Mexico. The intention is to investigate the application in other jurisdictions and broaden the scope.

If you’re keen to use them beyond Mexico, contact us here.

What makes protected agriculture low carbon and climate resilient?

Agriculture, forestry and land use accounted for 25% of global GHG emissions in 2014 and, as the global population grows and demand for food rises, it is essential to reduce the emissions associated with agriculture.

This can be achieved in two ways:

1. absolute reduction in GHG emissions and

2. increasing the yield of product per tonne of CO₂e.​

Both are vital for mitigation.

Protected agriculture has the capability to greatly increase the yield of product per tonne of CO₂e emitted. However, it also can be an energy intensive way to produce food, particularly when heating is needed.

IDB commissioned research on protected agriculture in Mexico, which provided a methodology to evaluate the environmental benefits of protected agriculture facilities. This was a pivotal piece of research for developing the Climate Bonds Protected Agriculture Criteria.

From a resilience perspective, protected agriculture performs well. The nature of the facilities mean that the growing environment is closely controlled and protected from pests and diseases. A stipulation on chemicals used is also included in the Protected Agriculture Criteria due to the effect these can have on the wider environment.

More about FIRA’s Certification

FIRA issued its inaugural green bond in October 2018. The bond finances both irrigation and protected agriculture assets.The irrigation assets were evaluated against the Climate Bonds Water Criteria. Once the Protected Agriculture Criteria were ready for use, FIRA undertook post-issuance Certification of their bond to confirm that the assets align with the Criteria. 

FIRA is the first to Certify using the Protected Agriculture Criteria, which also makes it the first Certified Climate Bond in the agriculture sector. Protected Agriculture are the first Criteria to be released for the agriculture sector.

We are currently developing Agriculture Criteria for perennial crops, non-perennial crops and livestock and these should be out for public consultation towards the end of the year.

Who is saying what?

Juan Antonio Ketterer, Head of the Connectivity, Markets and Finance Division of the Inter-American Development Bank (IDB):

"The agricultural sector has a lot of untapped potential for the green bond market and more broadly the sustainable finance sector. There is a lack of methodologies that support the evaluation of beneficial environmental impacts that sustainable agricultural technologies may have. The design of this methodology is a first step with a lot of replication potential in our region and with great pride and pleasure we present the results of this work and this first issue from FIRA."

Justine Leigh-Bell, Deputy CEO, Climate Bonds Initiative:

"Climate Bonds is delighted to jointly launch the Protected Agriculture Criteria, developed with the support of the IDB. The new Criteria provide guidance on investing in low carbon and climate resilient horticultural greenhouses; a step forward for sustainability in the wider agriculture sector.”

“We congratulate FIRA for their leadership and commitment to best practice in becoming the first institution to use the new Criteria for Climate Bonds Certification. Together with IDB and FIRA, a significant milestone in greening Mexican agriculture has been achieved.”

Broadening green opportunities

The latest Criteria launch is part of a longer-term programme to expand the reach of the Standard to new sectors and incorporate increased adaptation and resilience factors.

Last year, Certification was extended to green investment in Forestry.

Low Carbon Buildings has seen major expansion with new baselines for major cities in Germany and across Europe.

Woolworths Group in Australia has recently gained Certification for AUD500m green bond, specific to low carbon supermarkets.

In Agriculture, Shipping and Adaptation and Resilience (AREG) Technical Working Groups are now in place.

We’ll be opening a public consultation on Draft Waste Criteria in the next few weeks.

A big thank you to the reviewers and consultants

As with all our sector criteria, we would not have been able to get 'Protected Agriculture' to this point without the help of our reviewers and consultants. A special thank you goes to Christine Negra and Lawrence Pratt who both gave considerable time and effort.

The last word

The new Criteria provide guidance on investing in low carbon and climate resilient horticultural greenhouses; it’s a small but important segment for the agriculture sector and we have an Agriculture TWG working on wider questions in the sector.

Working in partnership with the IDB has been vital to bring this Criteria to market.

Finally, FIRA deserve recognition for pursuing Certification. Banks leading the way in best practice in green issuance is a positive signal to markets everywhere.

Well done all round!

‘Till next time,

Climate Bonds  

Green Investors Get More Green

The inaugural Dutch Sovereign Green Bond went to a successful direct auction today with reports marking strong investor interest in the Climate Bonds Certified, AAA rated offering maturing in 2040. 

For the first-time, investors with ESG considerations were given preference in the auction with a priority allocation worth upto 10% of their bids. 

In a statement, the Dutch State Treasury Agency (DSTA) advised bid volume reached a whopping EUR 21.2bn in just over 90 minutes with a final allocation of just under EUR 6bn. 

The Dutch Sovereign sets several precedents for the market, with both direct auction model and preference to green investors worth noting. A detailed breakdown of investor types and locations is available here.

Initially foreshadowed in a letter to the Parliament by Finance Minister Wopke Hoekstra in October 2018, today’s auction is part of a wider green bond program planned to reached EUR 10bn. At the time Hoekstra said: 

“I have decided to issue a green bond because I think sustainable investments and a further boost to the green capital market in the Netherlands are important goals. The green bond will represent a solid asset for any green portfolio. This will allow investors to diversify their green portfolios and help to further develop the domestic green capital market.''

Certification and Use of Proceeds 

Netherlands is the first EU nation to issue a Certified Sovereign Green Bond with Certification ranging across the major Criteria under the Climate Bonds Standard. Future sovereign green issuance will also be Certified according to the Green Bond Framework. 

Sharp eyed observers will note the preponderance of water infrastructure (the latest on flood risk is here) within a comprehensive use of proceeds array we think is worth listing in full: 

• Solar energy
  • Onshore solar electricity generation facilities
• Marine renewable energy
  • Offshore wind energy
• Water infrastructure 
  • Engineered water infrastructure 
    • Flood defence
    • Water distribution
  • Nature-based water infrastructure including flood defence 
• Low carbon buildings 
  • Residential property energy efficiency upgrades 
• Low carbon land transportation
  • Public passenger transport infrastructure

The Last Word- from Manuel Adamini, Head of Investor Engagement, Climate Bonds 

“Today’s auction reflects a national government seeking to boost market liquidity, stimulate domestic corporate issuance and encourage institutional investors with existing green and ESG portfolios. Congratulations!"

"This is green finance leadership writ large. In the face of the coming climate crisis we need more of it.”

'Till next time,

Climate Bonds

No time to waste! 1 week to go: Boot Camp Friday 7^thJune: Registrations closing mid-week: Last chance for Blog readers to register!

Following our first oversubscribed London Green Bonds Boot Camp in March we are hosting by popular demand a special return session, led by our technical expert Rob Fowler, scheduled for Friday 7^thJune in Central London. 

A unique, one-off opportunity for an intensive, practice-focused learning experience.

Suitable for DCM, fixed interest, infrastructure, ESG and sustainable investment specialists on both buy and sell side.

This will be the last Boot Camp in London for 2019.  

Boot Camp details:

• Central London Venue TBA 
• Full-day from 08:30 'till 17:00
• Max 30 attendees
• When: 7^th June - full day, including lunch
• Fee: £750 (plus VAT)

The full day program comprises of:

• Green bond basics and market overview
• Market dynamics, information and pricing
• Labelling and Certification
• Green definitions and Criteria
• Policy and market developments
• Team activities and worked examples

To secure a place for this exclusive opportunity, email training@climatebonds.net with “London Boot Camp” in the title bar. 

Registration closes Wednesday, June 5th - only last 3 places remain!

‘Till next time 

Climate Bonds 

Rail Certifications Gather Steam: Russian Railways, BTS, JRTT on track with first green bonds: Big repeat issuers SGP and NY MTA back for more!

image: scsoft.com

New rail entrants using green bonds to fund low carbon transport have appeared from Russia, Thailand and Japan. Meanwhile in Paris and New York, urban transport giants SGP and NY MTA continue their multiple Certification programmes. 

The Global Firsts: 

Russia - A Flock of new Swallows  

Russian Railways issued a benchmark EUR500m, 2.2% (the lowest rate ever for Russian-Euro denominated bond of any kind) Certified green issue. Heavily oversubscribed reaching an orderbook of EUR1.8bn; proceeds will go to finance, and re-finance high speed Lastochka‘Swallow’ passenger rolling stock as part of Russian Railway’s wider electrification and emissions reduction targets.

This the first international green bond from the Russian Federation, the first from their railways sector, the first Climate Bonds Certification and only the second labelled green bond from the Russian Federation.  

Russian Railways is set to increase its fleet of the new Lastochka with the current 183 train sets in service, increasing to 270 by 2021. More than half of the 85,500km Russian rail network has now been electrified, and over 85% of all rail movement in Russia takes place on the electric network. 

Global Railway Review reports more on their green plans. 

Thailand - New Lines for Bangkok's Skytrain 

BTS Group is one of the largest companies in Thailand and operates the well known Bangkok Mass Transit System, an elevated network commonly known as the BTS or Skytrain. 

Their inaugural THB13bn (USD408m equivalent) green bond in 5 tranches are the first to be Certified under the Low Carbon Transport Criteria and only the second green bond from the Thai Kingdom, after the ground-breaking B.Grimm Certified solar bond issued in December with the support of Asian Development Bank (ADB). 

The new bond will help finance extensions to the Skytrain with 64km of new overhead track and 53 new stations, doubling of its current network.

Japan - JRRT and High Speed Rail 

JRTT: The first Certified green bond out of Japan has come from Japan Railway Construction, Transport and Technology Agency. JRTT is responsible for the high-speed Shinkansen rail network as well as airport and urban lines. Proceeds of the JPY 55.3bn (USD500m) green issuance will go to network and infrastructure upgrades.

JRTT has previously signalled they intend on using Climate Bonds streamlined Programmatic issuance process in the future. This bond was issued with prominent support from a host of institutions including Mizuho Bank, SMBC Nikko and Nomura, so expect to see more green bonds down the track. 

Programmatic Repeats:

NY MTA’s 10th Green Issuance 

NY MTA: It seems like a long time ago when we announced NY MTA’s very first green bond in Feb 2016. MTA was the first to open green bonds to retail investors with their ‘Invest in the Planet - Invest in the MTA’ campaign aimed at New Yorkers. In February 2017 with their 3^rd green bond they did it again.  

The latest is the 10^th green bond issued under our Programmatic process to large organisations considering ongoing green debt programmes. MTA reach a cumulative Certified issuance at USD6,359m making NY MTA the largest Programmatic issuer to date.  

Don’t miss this snazzy YouTube clip marking some of their achievements. 

SGP and the Biggest Infrastructure Project in Europe 

SGP: As of May 2019, Société du Grand Paris have issued 8 green bonds in total mounting to a total of EUR4,995m (USD5,675m equivalent) all Climate Bonds Certified under the Programmatic route.

SGP joined Programmatic Certification in October 2018, the first bond in a massive 10-year multi-stage EUR35bn infrastructure project (the largest project in Europe) to upgrade the Paris rail network. SGP are financing the construction programme with a combination of public funds and a long term series of green bonds. 

The Last Word - Why transport matters 

Transport makes up 14% of GHG emissions. 72% of emissions from transport sector are attributed to roads with rail being the lowest contributor to this mix. 

Greening existing cities and the 2050 megacities of Asia, Africa and LATAM nations requires a significant shift to mass transit investment. This includes EV Bus Rapid Transit (BRT) networks and Mass Rapid Transit (MRT), Light Rail Transit (LRT), commuter rail, inter-city rail and regional rail services as well as increased freight capacity.  

Indonesia an example 

Developing investment pipelines and large-scale project funding that address urban population growth, emissions, and air quality is the goal. Indonesia is an Asian microcosm of this triple challenge, with rapid population growth, increasing density and is on track according to UN forecasts to become the 5th most populous nation on earth. 

Our Green Infrastructure Investment Opportunities (GIIO Indonesia) report of 2018 identified a plethora of low carbon transport infrastructure projects that will help create the low carbon development path needed for a population which is set to grow to 360 million by 2050. 

Developing the frameworks and pipelines that help shift capital towards low carbon transport in the cities and urban conurbations of emerging economies is an area governments, development banks and global finance have yet to adequately address. 

Rail Investment & SDGS

The diversity of these new entrants into the green bond market is an encouraging sign.

The SDGs linkage identified by Russian Railways and JRTT with these new bonds is another positive. SGP has previously made this connection in their Green Bond Frameworks. 

Climate Bonds is of the view that transport green bonds effectively contribute towards targets within SDGs 9, 11 and 13.

From adressing the climate crisis to changing the nature of cities, increased green investment rail infrastructure, rapid & mass transit, light rail, intercity and regional rail investment has multiple benefits. 

Toot Toot! 

'Till next time,

Climate Bonds.

A busy June for the Climate Bonds team in the Americas, Europe & Asia.

Our team is going to be part of a series of events and here is your guide on who's where.

If you would like a chance to engage and meet with the team, take a look at the agenda below!

Event Hosted by Climate Bonds Partner Citi with Speakers from GPIF, GFNJ, JRTT & Key Government Ministries

We have just received the Draft Agenda and line up for this Seminar which will include reports of major developments and explore next steps for Japan and green finance. 

It is reproduced in full below: 

Date and Time: Thursday, 20 June 2019, 13:30-17:00

Venue:

Citi, Otemachi Park Building, 1-1-1 Otemachi, Chiyoda-ku, Tokyo 100-8132

Location Map: https://www.citigroup.jp/en/about/access-opb.html

Agenda Topics will include the following:

1) Taxonomy

- EU Technical Expert Group Taxonomy: preview of report to be published 24 June; potential implications for Japanese industry

2) Green Bonds

- The diversification of the green bonds market - review of recent issuance, including the hugely successful Netherlands green sovereign

- Pricing developments with green bonds

3) Public sector action

- Developments with the international agenda on central bank and supervisor's role in Greening the Financial System

- Update on new Coalitions of Governments around green finance acceleration 

Tentative Program:

13:30-13:35  Welcome remarks by Citi

13:35-13:45 Introduction

By Hideki Takada, Secretary General of Green Finance Network of Japan

13:45-14:30  Overview of Developments in EU Taxonomy and Green Bonds 

By Sean Kidney, CEO, Climate Bonds Initiative

14:30-14:45  Experiences in JRTT Green Bonds Issuance

14:45-15:00  GPIF Green Bonds Initiative 

By Tetsuya Oishi, Head of Investment Policy, GPIF (TBC)

15:00-15:30  Coffee Break

15:30-15:40   Public Sector Developments 1: Ministry of Economy, Trade and Industry

15:40-15:50  Public Sector Developments 2: Ministry of Energy

15:50-16:00  Public Sector Developments 3: Japan Financial Services Agency 

By Satoshi Ikeda, Chief Sustainable Finance Officer, JFSA

16:00-16:15 Discussions on green / sustainable finance standards at the International Standards Organisation (ISO)

By Yoshihiro Fujii, RIEF

16:15-16:55  Roundtable discussion: Next Steps for Japan and Green Finance

Moderator:

• Hideki Takada

Panelist:

• Sean Kidney, Climate Bonds Initiative
• Satoshi Ikeda, Japan Financial Services Agency (JFSA)
• Ministry of Economy, Trade and Industry
• Ministry of Energy 

Special Conditions: This is an Invitation Only event & the Chatham House Rule applies. There will be no media presence.

Please email info@climatebonds.net to register your interest with “Tokyo Green Seminar” in the Subject Line. 

Language will include both English and Japanese. Simultaneous translation will not be available but, where necessary, consecutive translation may be provided.  

The Last Word

Green finance in Japan is gathering momentum. From the launch of the Green Finance Network in November 2018 to the 2019 green rail bond from Shinkansen high speed network operator JRTT.

GPIF, the world’s largest pension fund is taking an ever stronger interest in ESG investment. 

Our inaugural Japan Green Bond Report has Japan as the 12^th largest green issuer in 2018 and second only to China as largest issuer of green bonds in Asia.  

A quick look at the commercial and industrial heavyweights in our Nov 2018 comprehensive listing of domestic green issuers points to the potential of this market with just a slight tap to the green accelerator.

‘Till next time 

Climate Bonds 

PKO Bank subsidiary leads CEE with Low Carbon Buildings Certification 

PKO Bank Hipoteczny (PKO BH) have announced the issuance of PLN250m (up from an initial PLN200m) green covered bonds maturing in 2024. The bonds have received Climate Bonds Certification under the Low Carbon Buildings Criteria, a first for Poland. 

This announcement has drawn some attention as PKO BH is the covered bond issuing subsidiary of Poland’s biggest bank PKO Bank Polski. The proceeds will be exclusively applied for financing new or refinancing existing long-term residential mortgages with high energy efficiency. The full statement is here.

PKO BH on the podium

Green bond market growth is still in early stages for Poland. The Polish government Green Sovereign in 2016 attracted well deserved global acclaim. There have been 3 bonds to date amounting to a total of USD4.416bn equivalent. The government’s multiple issuance signals building the green bond yield curve, offering investors a wide range of maturities to choose from.

In 2017, Bank Zachodni WBK came to market with a USD154m equivalent issue. PKO BH is the now 3^rd issuer and the first to meet the Climate Bonds Standard. 

Paulina Strugała CEO, PKO BH

“PKO Bank Hipoteczny is the largest issuer of mortgage covered bonds in Poland and the obvious leader on the market. All of this encourages us to introduce innovative financial products and set new standards on the Polish market.” 

“The best example is our Green Covered Bond Framework and the criteria for green residential properties in Poland, developed on the base of the highest international standards. With the issue of green covered bonds, sustainable development becomes an integral part of our business.”

The Last Word

Climate Bonds has long called for the world’s top 100 banks to take stronger climate action. To do more to support green bonds, green loans and corporates committed to brown to green transition. 

PKO BH is not in the top 100 but green leadership is where you find it in the finance sector.

We’re happy to end the week with a round of applause for a Polish bank that’s showing the big boys how it’s done.    

‘Till next time,

Climate Bonds

Green light to green investment: EU sends the signal: Opportunities as market leaders seek best practice and look to zero carbon  

“The EU Taxonomy represents one of the single largest steps yet in reorienting basic economic activity towards low carbon. It will help bridge that gap between climate ambition and real economy investment that has been increasingly visible since the Paris Agreement.”

Sean Kidney 

Today’s Announcement

With the launch of today’s reports on an EU Taxonomy, a voluntary EU Green Bond Standard and the voluntary low-carbon benchmarks, the EU Technical Expert Group (TEG) has opened new pathways for a sustained increase in green investment into the 2020s and address the need to attract the hundreds of billions in private capital needed annually to meet climate and sustainability goals. 

The reports, a key part of EU Action Plan on Sustainable Finance, will become the basis for development of new regulatory frameworks for the financial sector. 

The European Commission has also announced that TCFD responses will be part of the reporting guidelines for the large listed European companies. 

How did we get here? Faster than many thought possible

Formed in December 2016, the ground breaking EU HLEG (High-Level Expert Group) overcame some initial scepticism over its accelerated development timetable, releasing an Interim Report in July 2017 and the seminal Financing a Sustainable European Economy final report in January 2018.  

HLEG recommendations formed the basis of the action plan on sustainable finance of March 2018 and in May 2018 the Technical Expert Group (TEG) was established. 

What has followed since December 2016 have been two major enquiries, myriad submissions, extensive stakeholder consultations, and reports leading to action in the space of just two and a half years.

The HLEG/TEG process has also spawned a host of similar activities: the UK’s Green Finance Taskforce, Canada’s Expert Panel on Sustainable Finance, and now the finance sector in Australia launching the Australian Sustainable Finance Initiative (ASFI), all are examining changes to domestic financial systems.  

Taxonomy in Focus 

The EU Taxonomy, modelled similarly to the Climate Bonds Taxonomy, is a procurement list for identifying and shaping green economic activities that will help meet and contribute to six environmental objectives.

These objectives are the following: 

i. climate change mitigation;

ii. climate change adaptation;

iii. sustainable use and protection of water and marine resources;

iv. transition to a circular economy, waste prevention and recycling;

v. pollution prevention and control;

vi. protection of healthy ecosystems.

It is based on two overarching principles of Substantial Contribution and Do No Significant Harm (DNSH). That is, to be included in the proposed EU Taxonomy, an economic activity must contribute substantially to at least one environmental objective and do no significant harm to the other five, as well as meet minimum social safeguards.

It defines economic activities across multiple sectors that meet climate change mitigation and adaptation objectives of the EU, covering:

-          Manufacturing

-          Agriculture

-          Transport

-          Buildings

-          Electricity generation

-          Water and waste

-          Information and Communication Technologies

More activities will be added in the future, including activities that contribute significantly to above environmental objectives.

A need for the Taxonomy

The need for standards and unified definitions has been an obstacle for green growth. Climate Bonds has been addressing the need for standards and unified definitions via its global Standards and Certification Scheme. Since 2013 the Climate Bonds Taxonomy has undergone continued refinement and development in defining sectors and areas of green activity for investors. 

The new EU Taxonomy builds on these foundations and is modelled similarly to the Climate Bonds Taxonomy. It has enlarged the number of sectors for which specific benchmarks are available to support procurement complementing the criteria set by Climate Bonds. It provides an effective classification tool to help both investors and companies identify environmentally friendly activities. The work of the TEG will also help contribute to better climate risk disclosure. 

Sean Kidney, CEO Climate Bonds Initiative: 

“The EU Taxonomy represents one of the single largest steps yet in reorienting basic economic activity towards low carbon. It will help bridge that gap between climate ambition and real economy investment that has been increasingly visible since the Paris Agreement.”

“The Technical Expert Group is working to engineer a sustained increase in green investment into the 2020s, to mainstream low carbon directions into real economy investment, infrastructure finance and capital allocation.”

“We’re in a climate investment race, to attract the hundreds of billions in private capital needed annually to meet climate and sustainability goals. The EU Taxonomy will clarify what needs to be done and make it easier for investors and banks to grow sustainable finance markets in Europe.”

“Investors and companies can now act with increasing confidence, within a common structure of information and reporting, to identify environmentally friendly economic activities. Asset owners and managers can act decisively to significantly increase the proportion of sustainable activities across their portfolios.”

Key recommendations

1. The report sets out the basis for a future EU Taxonomy in law. Investors and other potential users of the EU Taxonomy can already start to understand the implications of the it. The report contains:  

• Technical screening criteria for 67 activities which can make a substantial contribution to climate change mitigation objectives. Almost all have also been assessed for significant harm to other environmental objectives. 
• A methodology and worked examples for evaluating substantial contribution to climate change adaptation.
• Guidance and case studies for investors preparing to use the EU Taxonomy. 

2. Consistent with the Mandate of the TEG, the EU Taxonomy recommendations:

• Identify potential contributions to each environmental objective over the short and long-term. 
• Specify minimum requirements to avoid significant harm to other objectives. 
• Build, in many cases, on Union labelling and certification schemes, methodologies or regulations, as well as well-established market Taxonomies. 
• Are based on conclusive scientific evidence, high quality research and market experience. 
• Consider the lifecycle of an economic activity.  
• Aim to adopt technology neutral approach.

The EU Taxonomy also supports brown-to-green action by: 

• Including economic sectors and activities that are not already low carbon to provide a path towards and incentivise their substantial contribution to mitigation objectives. 
• Focusing on classifying economic activities and not investable entities, the Taxonomy can be used by any organisation to specify the proportion of its activities that substantially contribute to environmental objectives

3. The TEG considers three kinds of activity that can make a substantial contribution to climate change mitigation. These are:

• Activities that are already low carbon. These activities are already compatible with a 2050 net zero carbon economy. Examples include zero emissions transport, near to zero carbon electricity generation and afforestation. 
• Activities that contribute to a transition to a zero net emissions economy in 2050 but are not currently operating at that level. Examples include electricity generation <100g CO₂/kWh or cars with emissions below 50g CO₂/km.
• Activities that enable those above. For example, manufacturing of wind turbines or installation of highly efficient boilers.

The next steps 

The TEG’s mandate has been extended until the end of the year. It will use this time to:

• Refine and further develop some incomplete aspects of the proposed technical screening criteria for substantial contributions and avoidance of significant harm.
• Seek additional feedback on criteria that have not yet been subject to public consultation (the TEG will launch a call for feedback by early July).
• Develop further guidance on implementation and use of the Taxonomy.

TEG’s recommendations are designed to support a proposed Delegated Act, to be developed by the European Commission. 

The Last Word on Green? - Not Quite Yet 

In keeping with Climate Bonds long term commitment to mobilising financial markets towards green solutions - assessed against the latest climate science, we’ll continue our green definitional programme integrating additional adaptation and resilience (AREG) factors in existing and new Criteria and maintaining the rigour of our Criteria thresholds. 

Investors wanting to support fast movers towards zero carbon business models and accelerate the decarbonisation of their portfolios will continue to seek Climate Bonds Certified investments, representing science-based best practice in the market. 

Green debt issuers will continue to offer Climate Bonds Certified investments to widen and solidify investor support. 

Given the close association between the EU Taxonomy and the Climate Bonds Taxonomy, the impetus towards a higher bar will be attractive to transition leaders.     

EU Climate Leadership 

The trio of announcements made today are more than simply improved guidance to the market. 

In part, they represent long sought policy goals of Climate Bonds: to have regulatory support for the clean economy of the future. To develop the frameworks and structures that encourage investors and corporations in sector by sector brown-to-green transition, and, increasingly align future investment towards NDC objectives, associated SDG outcomes and a Net Zero world. 

The EU has done just that, taking the lead role in harmonisation on green definitions in core economic sectors. 

The scope for green bonds, green loans, green securitisations and green equity investments is being expanded across one of the world’s largest financial and trading blocs. The signal to other jurisdictions, to global banking and finance and to the world’s 100+ largest emitters is unmistakeable. 

Climate Bonds welcomes this bold new platform being established today. We’ll continue to contribute and build on the work. 

Look for some unpacking of todays’ announcements in special Blog Posts over the next few weeks, exploring the interaction between the TEG features and markets and looking at some of the commentary already emerging around TEG proposals.

Into the 2020s

The climate investment race is on, with not much leeway for breaks. The EU is redesigning some of the basic rules of the race, an enormous task that representatives on the HLEG and TEG have undertaken with gusto. 

They deserve our plaudits. 

Meanwhile, the need for speed remains. Green trillions into the 2020s. 

‘Till next time,

Climate Bonds

Acknowledgements: Climate Bonds CEO Sean Kidney has been a civil society representative on both EU HLEG & TEG. Head of Standards, Anna Creed chaired the Agriculture Group in the Taxonomy work stream and a Climate Bonds team have contributed to a range of other TEG activities.  

Green issuance is part of Chile's national economic policy to tackle Climate Change. New issuance in Euros coming in the following weeks

COP25 host nation, Chile has announced results from their inaugural USD 1,418 million sovereign green bond, the first ever issued in the Americas. The bond will finance projects dedicated toinfrastructure for electrified public transport (trains, buses); solar projects; energy efficiency; renewable energy; water management and green buildings.  

The project portfolio has been Certified under the Climate Bonds Standard, Verification was provided by Vigeo-Eiris. The process of issuance was supported by the Inter-American Development Bank (IDB).​

Issuance in Numbers

The Ministerio de Hacienda reports that the goundbreaking green transaction attracted an interest rate of 3.53%  (the lowest obtained by Chile with a similar term in its history) and spread of 95 basis points over the US Treasury rate (also the lowest among emerging economies for issues at the same time).

Investor demand was high, peaking at USD6.7 billion, 12.8 times more than the new debt offer, with more than 300 accounts showing interest, including traditional investors of Chilean Sovereign bonds and new dedicated green bond investors.

This week's issuance followed the announcement made by Chile's Minister of Finance, Felipe Larraín, on the actions taken by the government to tackle climate change.

Who's saying what?

Felipe Larraín, Minister of Finance, Chile:

"Our administration is firmly committed to tackle climate change with concrete actions. The issuance of Chile's first sovereign green bond clearly reflects our commitment to further advance sustainable development with effective economic policy tools. The success of the transaction, with exceptionally low rates and an important diversification of our investor base, suggest we are on the right path."

Juan Pablo Bonilla, Manager, IDB's Climate Change and Sustainable Development Sector (CSD):

“IDB is proud to support Chile on their first green bond issuance as part of our commitment to helping countries in our region achieve sustainable development."

"We believe green bonds are excellent tools to allow public and private institutions mobilise investments at scale towards low-carbon and climate-resilient investments aligned with its international commitments and we hope to see other nations following Chile's example.”

Justine Leigh-Bell, Deputy CEO, Climate Bonds Initiative:

“We congratulate Chile on its first sovereign issuance. It’s a huge step in the development of green finance in Latin America and a benchmark for the region. It is also an example of national leadership towards fulfilling the Paris Agreement."

"We are happy to contribute to the consolidation of Chile's green finance agenda and we believe 2019 will be a great year for green bonds in Latin America".

The Last Word 

So far in 2018 we’ve seen a huge Climate Bonds Certified green sovereign bond from Netherlands and a smaller debut green issuance from Hong Kong and South Korea. Nigeria is looking to a second Certified green sovereign, Egypt, Germany, Peru and Spain are on the horizon into 2020. 

Chile has now set the green bar high in the Americas. 

Stay tuned for another green sovereign as the COP25 host keeps the green finance momentum going in the run up to the big global climate gathering. 

'Till next time,

Climate Bonds

PS: Learn more about the Climate Bonds Certification and how to get Certified. 

USD 106.7bn before end June. TEG to Open New 2020 Pathways towards vital first $1trillion in Green Finance.   

Green bond issuance has surpassed the USD100bn mark for 2019. Climate Bonds expects that the impact of the EU TEG process will help open the 2020s path towards the vital first trillion in annual green finance investment. 

The USD100bn benchmark was first met in November 2017 during COP23 and then in mid-September in 2018. Several bonds that settled late last week and three deals which settled on 24^th June (Alliander – EUR300m [USD342m] Vattenfall – EUR500m [USD569m] and  Korea Electric Power Corp – USD1bn) have taken Climate Bonds market data figures on cumulative labelled green issuance for 2019 to USD106.7bn, above the USD100bn mark. 

Forecasts for final annual issuance in 2019 range from USD180bn through to USD240 bn to USD250bn.

Green Bond Issuance USD 100 billion Milestones 2017-19

Big Issuers to date in 2019d

The largest corporate bonds issued to date in 2019 have been from Engie at EUR1.7bn, LG Chem at USD1.6bn, the Industrial and Commercial Bank of China (ICBC) and MidAmerican Energy, both at USD 1.5bn. The largest Sovereign green bond in 2019 to date has been a Climate Bonds Certified issuance from the Netherlands at USD6.7bn. 

Top 15 National Green Bond Issuance YTD June 2019

The Last Word 

We’ll leave with Sean Kidney’s comments: 

“This is the first time this key milestone has been reached in the first half the year.”

“Reaching USD100bn in green issuance for the 3^rd time and so early in the year is welcome; however, the global climate finance challenge is to reach a USD 1 trillion in annual green investment early in the 2020s. The EU TEG process, in particular the EU Taxonomy opens new pathways to achieve this critical climate investment goal.” 

“The common definitions that the EU Taxonomy provide across broad sectors of the real economy, opens the door for brown-to-green transition of corporate assets and capex programs, and for banks and insurance companies to sizeably increase the availability of green capital.”

“It also provides pension funds with the increasing confidence of their role as long term supporters of the leaders in this economy wide shift towards zero carbon.”

“With the EU Taxonomy’s reach initially encompassing Manufacturing, Agriculture, Transport, Buildings, Electricity generation, Water, Waste & ICT, increased green bonds, green loans and green equity funding can be directed towards mitigation, resilience and adaptation.”

“Over the next few years, we would expect to see European nations cement their place in the Top 15 of global green bond issuers as the combination of the TEG outcomes, TCFD compliance and institutional investor expectations collectively influence transition-based investment and capital allocation decisions.”

‘Till next time, 

Climate Bonds 

Correction and Clarification: 

A previous version of this Media Release had the Engie bond listed at USD 1.7bn. The correct denomination and figure are EUR 1.5bn (equiv. to USD1.7bn). Climate Bonds apologises for any confusion this error may have caused. 

Figures for annual green bond issuance in 2017 and 2018 reflect Climate Bonds initial calculations as at December 31 each year and reported in early January and the adjusted figure reflects final assessment & calculations reported at end Q1 of the new year.                

COP25 host nation Chile leads the Americas on Green Finance with second Sovereign Green Bond: Both Climate Bonds Certified

Shortly after announcing impressive results from its inaugural ​USD 1,418 million sovereign green bond, Chile has issued a second green bond, this time in euros. 

The Euro transaction stands out as being the first Sovereign Green Bond issuance in Euros issued by a non-European sovereign. It will finance projects dedicated to infrastructure for Solar Renewables, Low Carbon Buildings, Low Carbon Transport, and Water infrastructure.  

Just as the U.S. dollar issuance, the Euro project portfolio has been Certified under the Climate Bonds Standard, with Verification provided by Vigeo-Eiris. The process of issuance was supported by the Inter-American Development Bank (IDB).​

Issuance in Numbers

The euro-denominated green bond issuance totalled EUR861m and is due in 2031.

The Ministerio de Hacienda reports that the Euro green transaction achieved a historically low rate of 0.83% (the lowest obtained by Chile with a similar term in its history) and a 50-basis point spread against the benchmark interbank rate.

The issuance received an initial demand of EUR4.015bn, 4.7 times the offered amount, with more than 200 investors from Europe, Asia and the Americas, indicating a diversified demand across types of investors, particularly green investors and by regions. 

A reminder 

We had a lot to say in our previous Chile Blog, marking the initial USD issuance, but it's worth reiterating some of the firsts: 

-       the first sovereign green bond from the Americas 

-       the first Climate Bonds Certified sovereign from the Americas 

-       the first time a sovereign outside the EU that has issued a Euro-denominated green bond

And it’s also worth repeating the comment from Justine Leigh-Bell, Deputy CEO: 

“We congratulate Chile on its sovereign issuance. It’s a huge step in the development of green finance in Latin America and a benchmark for the region. It is also an example of national leadership towards fulfilling the Paris Agreement."

"We are happy to contribute to the consolidation of Chile's green finance agenda and we believe 2019 will be a great year for green bonds in Latin America.​"

The Last Word 

That’s two for two now from Chile. Well done to the COP25 host for keeping the green finance momentum going in the run up to the big event.

'Till next time,

Climate Bonds

PS: Learn more about the Climate Bonds Certification and how to get Certified

Germany firms position in global top 5 - Could a Green Bund be on the way?

    Franktfurt at night

Climate Bonds launched the Germany Green Finance State of the Market – 2019 (GGF 2019) in Munich earlier this week focussing on green bond issuance, policy developments and market growth in the world’s fourth largest national green bond market in 2018. 

Also, the week is ending with the Financial Times reporting on German Finance Ministry’s moves towards issuing a green bund for 2020. 

GGF 2019 

Produced with the support of DZ Bank and DekaBank, the GGF 2019 report calculates total green bond issuance of EUR6.6bn (USD7.6bn) in 2018, placing Germany fourth in annual country rankings. 

Renewable energy tops use of proceeds followed by low carbon buildings and low carbon transport. The three biggest green bond issuers were KfW EUR1.6bn (USD1.9bn), Berlin Hyp EUR1.0bn (USD1.2bn) & Deutsche Hypo EUR0.6bn.  

KfW has also issued the largest domestic green bond to date in 2019 with their May EUR3bn (USD3.4bn) offering. Use of proceeds are committed to renewable energy and low carbon buildings. 

2018 also saw a 20% rise of financial corporate issuance as more banks including Commerzbank and DZ Bank entered the market with green instruments financing renewable energy. German issuers also continue to lead in providing transparency to the market: 99% of cumulative issued volume benefits from an external review.    

2018 Annual Highlights:

• EUR6.6bn (USD7.6bn) green bonds were issued in 2018, which was the 4^th largest amount globally after the US, China and France
• Renewable energy dominated use of proceeds with 60% in 2018, low-carbon buildings (37%) and transportation (2.6%) the next largest categories
• Financial corporates dominated the issuer type mix with 43% - a 20% year-on-year increase
• 89% of 2018 green bonds were EUR denominated up from 69% in 2017. The second most popular currency after EUR is USD with SEK third 

Cumulative Market Highlights: 

• 12% of the overall market is Climate Bonds Certified 
• 99% of all German green bonds to date benefit from at least one external review
• 91% (by number) also provide post-issuance disclosure with 78% publishing both use of proceeds as well as impact reporting**
• Renewable energy leads cumulative use of proceeds at 70%, with low-carbon buildings next at 25% and transport at 1%. Water, waste, land use and ICT comprise the remaining 2.5% 
• 87% of cumulative issuance is bonds of EUR500m or above, indicating a healthy pipeline of green assets and projects and further head room for growth 

Our Four Catalysts for Accelerating Green Growth:  

• Issuance of a green sovereign and public sector green bonds; Signalling to the market to support green finance growth 
• Awareness-raising and stakeholder dialogues; Implementation of EU TEG outcomes and supporting sustainable finance activities  
• Policy framework development; Sustainable finance hub development and strategies  
• Accelerated energy transition (Energiewende) financing; 

Who’s saying what?

Viktoria Gerling, verantwortlich für Sustainability Bonds im Kapitalmarktgeschäft der DekaBank: 

“With climate change turned from a threat into an acute emergency, we need to deploy and finance ambitious climate mitigation and adaptation projects and assets at scale, at speed. Germany has already shown tremendous leadership at home, in Europe and beyond. We now need to bring that leadership from the political and energy utility space into the finance space. This report depicts the status quo, lessons learned and opportunities going forward.”

Marcus Pratsch, Head of Sustainable Bonds & Finance bei der DZ BANK: 

“DZ Bank is excited to work with other market players and the Climate Bonds Initiative to further deepen and broaden national and international climate finance. Cooperation is the way forward to tackle the challenges in front of us, and we invite all other influential players to come to this exciting climate finance space and make the largest possible contribution.”

Manuel Adamini, Head of Investor Engagement at Climate Bonds Initiative:

“Germany is already a global voice on climate action at COP, the OECD and G20. Its domestic banking, finance, technology and industrial sectors provide a platform to cement a leading role in the area of energy transition (Energiewende) and green finance. The GGF 2019 report reflects these strengths and opportunities for Germany in an expanding market for sustainable investment that supports the shift towards zero carbon.”

The Last Word

Germany joining the sovereign green bond club would attract global attention given the central role it plays in EU and global finance. Membership currently includes Poland, France, Fiji, Nigeria, Ireland, Belgium, Holland, Lithuania, Seychelles with a blue bond and Chile. Plenty of room for more amongst G20, OECD, EMEA and LATAM nations. 

Meanwhile the GGF 2019 report reveals the extent to which German banks and corporations are already acting on green finance. Movement at a national and regional level from the public sector would add considerably to domestic momentum. We also expect the impetus arising from the EU TEG process which Climate Bonds has been participating and contributing, to be a positive force. Through the remainder of 2019 and into 2020 our best estimates are that Germany will remain in the leadership group as one of global top 5 of national green issuers. 

‘Till next time,

Climate Bonds

Available in English and German,  Germany Green Finance State of the Market 2019 is the second Germany report in an ongoing series from Climate Bonds analysing green finance developments in Europe.

Green Bond to fund EV production facilities: Sets example for Certified corporate issuance in Japanese market

Japanese electrical manufacturing conglomerate Meidensha has announced the issuance of their inaugural green bond, valued at JPY 6bn (approximately USD 55m) and set to mature in 5 years. The deal was popular with institutional investors – 22 investors showing “public investment will”. 

Meidensha stands out as the first private sector Japanese Corporation to receive Climate Bonds Certification, following the ground breaking Certified issuance from public rail constructor JRTT, funding developments to the Shinkansen fast rail network. Meidensha's commitmentto ESG, emissions reduction and the SDGs is quite visible.  

The pricing range was from 0.25% - 0.30% for the first day of marketing. Strong demand was received from financial institutions such as asset managers, insurance companies and regional banks leading to the deal finally being priced at 0.26%, at the tighter end, with final book cover of about 4.5 times as much as the issue amount Meidensha advised. 

Proceeds to EV production

Proceeds of the bond will be used for investment in the mass-production capacity for EV motors and inverters, which are a growing focus for the power and electrical equipment manufacturer, founded in 1897.  EV motor and inverter development commenced in the early 1990s. 

Mr. Akio Inoue*, Executive Officer of Accounting & Financial Group of Meidensha:

"The impact of our bond on the market may not be significant. However, as the first company from the private sector to obtain the CBI Certification in Japan, together with JRTT, which has first acquired the same Certification in the public sector, we would like to help Certification become more common in the Japanese SDGs & bond market." 

Sean Kidney, CEO Climate Bonds Initiative:

“Japan has seen various multi-facetted green finance initiatives emerge to support market growth. This Meidensha bond is a sign of where the market will develop.”

“Green issuance is set to increase, and investors are increasingly looking for quality Certified green product. Meidensha is providing an early lead to the private sector in addressing this demand.”

Japan and the Green Bond Market 

Japan is the second largest green finance market in Asia Pacific after China, and 2018 total issuance figures placed Japan 12^th on the world issuance ranking table. 

Greenfiance initiatives are increasing, November 2018 saw the launch of Green Finance Network Japan, a taskforce committed to a greater green focus on Japan’s finance and investment markets.  

In March, Ministry of the Environment, Japan hosted the Japan Green Bond Symposium with the purpose of sharing information on the latest green bond trends in Japan and abroad. 

Responsible Investor's (RI) Ella Millburn reported in May on wider SDG & TCFD developments and ESG trends and RI further reported in Junethat Tokyo had become the 25th member of UN sustainable financial centres (FC4S) network.   

The Last Word

Meidensha’s new bond issuance is another step towards normalising Certification as a part of best practice in the Japanese green bond market.

In a statement to Climate Bonds their view is clear: 

“Through this bond Meidensha has made a declaration of their intent to conduct business with full environmental awareness. With the Climate Bonds Certification, Meidensha aims to provide greater confidence by following a global Standard which provides the required strictness in the burgeoning green bond market.” 

JRTT’s and now Meidensha’s bond issuances are only the beginning. 

‘Till next time,

Climate Bonds.

*Photo of Mr. Inoue provided by Japanese media outlet CAPITALEYE

More from our Blog on recent green finance development in Japan: 

April 2019 

Trio of reports launched at Tokyo Green Bond Symposium: Japan Green Finance 2018, 

Nov 2018 

Tokyo: Launch of Green Finance Network Japan

June 2019 

New green rail bonds: Russia, Thailand, Japan, France, USA

Feb 2019

Japan: JRTT Inaugural CBI Certified Green Bond: Fast train network operator goes to market 

Japan green finance state of the market 2018 available in Japanese and English

H1 2019 green bond issuance 48% up on H1 2018: 3 new members in sovereign green bonds club: Chinese banks ever more active in emerging market underwriting

Climate Bonds has launched Green Bonds Market Summary – H1 2019 report. It focuses on labelled green bonds and the latest market developments.

The report identifies issuance trends in the first half of the year and highlights topics of special interest, including sovereign green bonds and green asset-backed securities (ABS).

H1 2019 highlights

Global green bond market:

• Labelled green bond issuance: USD117.8bn (up 48% on H1 2018) 
• Non-financial corporates lead with 26% of volume, followed by financial corporates at 19%
• Emerging markets make up nearly a fifth (19%) of issuance with China’s lead  
• Sovereign green bond issuance growing: 3 new issuers enter the market bringing total to 12
• USD12.3bn sustainability / SDG / ESG bonds and loans financing green and social projects
• USD5.7bn social bonds financing social projects
• USD11.9bn additional bonds, which do not meet the Climate Bonds Green Bond Database screening criteria
• The Dutch and Chilean governments issue Certified Climate Bonds

Green Sovereigns: The start of a boom?

The first sovereign green bond was issued in December 2016 by the Republic of Poland. Since then, 12 governments have issued 23 green bonds totalling USD47.5bn. Almost 40% of that amount (USD18.4bn) was printed in H1 2019. This boosted the proportion of sovereign bonds of the total from 12% in H1 2018 to 15% this year.

The Netherlands, Hong Kong, and Chile issued debut green bonds in H1 2019. Poland, Indonesia and Nigeria returned to the market, and the French green OAT was tapped twice.

Highlights from the sovereign spotlight section

• Most of the financing from sovereign bonds goes to low-carbon transportation, but the proceed allocations are diverse
• Our pricing research finds that 50% of the 10 bonds for which we have comparable data attracted a larger order book than vanilla equivalents during the primary pricing process
• For the same basket of bonds, 91% achieved larger spread compression during the book-building process than comparable baskets, and
• Sovereign green bonds from France, the Netherlands, and Chile 2050 exhibited a “greenium”

Looking ahead, Sweden, Germany, Spain, Egypt and Peru have all signalled 2020 issuance. This would take the sovereign green list close to twenty, which is a positive, but there’s still room for more.

The wider labelled universe: sustainability bonds, social bonds, SDG bonds, blue bonds …

The labelled bond market continues to expand beyond green bonds. The first half of 2019 saw sustainability/SDG bonds maintaining their place in the wider labelled market with USD10.3bn of transactions as issuers and investors continued adopting policies and strategies linked to the UN’s 17 Sustainable Development Goals. Social bonds also maintained visibility with USD5.5bn of issuance within the labelled market which totals a healthy USD145.4bn for the half year. 

Climate Bonds supports the Sustainable Development Goals (SDGs) overall and see many links between green bond finance and specific SDGs, in particular SDGs 6, 7, 9, 11, 13, 14 and 15.

Notwithstanding this, Climate Bonds remains focused on green bonds, which are specifically linked to climate-change mitigation, adaptation and resilience. Consequently, the proportion of proceeds allocated to social projects which are not also green, needs to be no more than 5% for inclusion in the Climate Bonds Green Bond Database.

Underwriter league tables

In H1 2019 HSBC took the top spot from BAML for green bond underwriting, where BAML shifted one rung to second place. The largest underwritten deals for HSBC included the USD1.48bn sovereign Certified Climate Bond issued by the Republic of Chile and the EUR1bn Certified Climate Bond from Société du Grand Paris (SGP).

Despite the change in order, the top 5 underwriter composition is similar to H1 2018: Credit Agricole, JP Morgan and BNP Paribas took 3^rd, 4^th and 5^th places (2^nd, 5^th and 3^rd last year, respectively).  

HSBC also topped the Emerging Markets (EM) underwriter league table. The EM Top 20 includes 7 Chinese banks, with ICBC leading this sub-group at 6^th place overall. We expect China’s dominance in green bond EM issuance and underwriting to continue overtime. Poland’s PKO Bank is also noteworthy, which issued a Certified covered bond in June 2019, taking 16^th place in the rankings.

The Last Word

The first half of the year has seen an upswing in market growth after the disappointing end to 2018. The USD100bn mark was passed in late June, the first time the milestone has been reached during H1, and outlook for 2019 remains positive.

Climate Bonds’ January estimate of up to USD250bn in annual issuance for 2019 remains unchanged.

We’ll give you another update at the end of Q3.

Till next time,

Climate Bonds

Third green issuance from California mass transit operator: Certification under Low Carbon Transport Criteria 

Bay Area Rapid Transport (BART) opens access to its latest green bond offering to retail investors on Monday next week, with institutional investors expected to follow later in the week, according to a statement issued by the San Francisco based mass transit operator. 

In a continuation of their highly successful 2017 campaign under the “Be Climate Smart – Invest In BART” label, preference is being given to residents of the counties of Alameda and Contra Costa, and the City and County of San Francisco, all core Bay Area commuter catchment zones.

Previous green issuances took place in June 2017 (USD384.7m) and December 2017 (USD185.5m). 

BART estimates the final offering will be approximately USD674m with the Preliminary Official Statement (POS) declaring that proceeds will go to financing or refinancing projects under the Earthquake Safety Program and to finance continued work on BART’s core infrastructure through improvements to network infrastructure including track, tunnel and system upgrades. 

Morgan Stanley, Citigroup and Siebert Cisneros Shank have been mandated as lead managers. JP Morgan, Stifel, Backstrom McCarley Berry and Raymond James are co-managers.

Similar to other major urban transit operators including SNCF Réseau, Société du Grand Paris, Japans’ JRTT and the NY MTA,  BART has adopted Climate Bonds streamlined Programmatic Certification route, designed to suit issuers with large asset pools and plans for multiple green bond issuances. 

Climate Bonds relied upon First Environment’s verification reports to provide Certification under the Programmatic route for BART’s general obligation bond programs. 

Background on BART 

BART is the fifth busiest heavy rail rapid transit system in the US with system ridership totaling over 120 million passengers in the 2018 financial year. 

World First: Low Carbon Buildings Certification for QCSF shopping centres in Australia 

Coming Up: AUS & NZ reports to reflect latest on green infrastructure & green markets 

Queensland Investment Corporation (QIC) inaugural green bond has tipped cumulative green issuance over to AUD15.1 (USD11.25bn) reinforcing Australia's position in the top three of Asia-Pacific nations behind China who dominated at end June 2019 with USD85.4bn of cumulative green issuance, with Japan in second place at USD12.9bn. Next closest  in the region was South Korea with USD6.2bn.  

The Climate Bonds Certified AUD300m deal from the Queensland Government's AUD85bn (USD60bn)* investment arm is world a first for the retail sector and will lead to a minimum 35% reduction in greenhouse gas emissions intensity in three large retail centre assets within the QIC Shopping Centre Fund (QSCF) portfolio over the life of the bond. 

In Australia shopping centres account for 36% of commercial building energy consumption. 

With national emissions continuing to rise and slow progress on national climate and clean energy policies, improvements to emissions performance and energy efficiency in the built environment are vital to achieving Paris commitments and contributing to longer term low carbon transition. 

In a QIC Statement Managing Director of Global Real Estate, Michael O’Brien said: 

“Issuing a green bond is an important milestone for QSCF and the retail property sector globally and is an endorsement of QIC Global Real Estate’s progress and ongoing focus on sustainability.”

“The QSCF green bond was five times oversubscribed and attracted new investors with green and ESG investment mandates to the Fund from across Asia and Australia.” 

NAB & CBA acted as arrangers, the Australian Financial Review also marked that the QIC bond was the seventh green/sustainable bond NAB has brought to market so far in 2019, and its 25th green, social and sustainability bond to date.

CEFC Leads Again as Cornerstone Investor

The Clean Energy Finance Corporation (CEFC) contributed AUD30mn as a cornerstone investor in the deal continuing its long-term leadership position and support for green finance in Australia. The CEFC has invested more than AUD500 million in 12 Certified climate bond issuances in just over seven years.

In a media statement CEFC Debt Market Lead, Richard Lovell, said the market would expect to see new types of green bonds issued by Australian corporates as they continue to increase their focus on sustainability and energy efficiency.

“This green bond has been Certified by the Climate Bonds Initiative under the Low Carbon Buildings – Property Upgrade sector criteria. It is a great example of the benefits that can arise from working on transforming a corporate’s asset base energy efficiency.” 

Latest Low Carbon Building Certifications 

The QIC bond is the latest in a string of Australian Certifications under the Low Carbon Buildings Criteria in 2019.  

June saw an AUD880m Certified Green Loan from Brookfield Properties, in April Woolworths Group announced a world first with their AUD400m green bond for supermarkets and January saw Investa, already a multiple green bond issuer closing Australia’s first Certified Green Loan for AUD170m.  

The latest commentary from industry events forecasts more green bonds to come. 

Late August Launch for 2019 Australia and NZ Reports 

The QIC issuance comes as Climate Bonds is preparing its Australia Green Infrastructure Investment Opportunities (GIIO) report for 2019 and annual Green Bond updates for both Australia and New Zealand markets. 

The Climate Bonds GIIO report series are a first of their kind – an annual analysis to identify and explore national pipelines of investable, low carbon infrastructure projects. 

The 2018 Report identified a pipeline of more than 400 low carbon infrastructure assets and projects across Australia and New Zealand suitable for green finance.

In 2019 we’ll be reviewing progress and outlining our recommendations for increased infrastructure investment through the 2020s that supports low carbon transition.  

Want to Hear More? You’re Invited!  

There are still a few places left for lucky local blog readers at our August report launch events.

Register soon as seats are limited. 

Sydney Tuesday 27 August 2019

9:00 am – 12:15 pm AEST

Melbourne Thursday 29 August 2019

8:30 am – 11:30 am AEST

Auckland Friday 30 August 2019

8:30 am – 10:00 am NZST

See you there, 

Climate Bonds 

Acknowledgements

The Australia and New Zealand reports are produced by the Climate Bonds Initiative together with sponsors ANZ, BNZ, CBA, NAB, Westpac and KPMG and partners Ashurst, the CEFC, IFM Investors,IGCC, PRI, and RIAA. 

*As at December 2018 

Market growth to date driven by banks and sub-sovereigns

Green finance wave needed to address carbon targets, climate impacts and brown to green transition

Australia has the capability and capital to launch a wave of green infrastructure investment throughout the 2020s but is yet to take full advantage of opportunities to build climate readiness and resilience according to the latest Climate Bonds reports launched in Sydney on Tuesday.  

The reports are the 2nd in Climate Bonds Initiative annual Australian series. Green Infrastructure Investment Opportunities Australia 2019 (GIIO) identifies a national pipeline of over 400 green infrastructure projects with investment potential. Green Finance State of the Market Australia 2019 (SoTM) provides a full analysis of domestic green investment as of 30th June 2019.

Together they advocate increasing green investment in the real economy including use of green bonds and other green investment products.

New Partnerships for Green Infrastructure and Brown to Green Transition

The GIIO report notes that sustained emissions reduction has not yet been effectively integrated into national infrastructure priorities and backs new long-term partnerships between banks, superannuation funds, corporations and governments to address rising emissions, urban congestion and sustainability pressures.

It calls for expanded green finance mechanisms and cooperation between the public and private sector to achieve more productive capital allocation into green infrastructure, with energy, transport, water, waste and buildings as the priority areas.

In the face of coming climate impacts, the GIIO report supports strengthening adaptation and resilience factors in social, urban and economic planning, infrastructure design and operation. 

The report states that building Australia’s green finance capabilities would also support ASX listed companies in undertaking higher levels of green investment, critical to meeting increasing institutional investor expectations of brown to green transition and progress towards low carbon and ultimately zero-carbon business models.

Banks and State Governments are shaping the market

Australia SoTM 2019 notes that the domestic green finance market is an example of international best practice with ongoing commitment from the banking sector acting as an underlying driver of both market growth and innovation.

The market is characterised by large scale green bond issuance from state government investment entities (TCV, QTC, NSW TCorp) with low-carbon transport (53%) and low carbon buildings (22%) dominating their green bond use of proceeds as of 30th June 2019. Since then, the Queensland government investment arm QIC has issued an AUD300m Certified Climate Bond.

The five largest green bond transactions to date have been led by New South Wales TCorp AUD1.8bn (USD1.313bn), Queensland Treasury Corporation AUD1.25bn (USD892m), NAB EUR750m (AUD1.2bn) and Macquarie Group GBP500m (AUD883m).

On a cumulative basis, low carbon buildings dominate green bond allocations with approximately 43% share of use of proceeds. Energy follows with 25%, low carbon transport at 24%, water at 6% and waste at 2%. Green bonds are yet to be issued for other industry sectors including land use and ICT.

Australia’s major banks have all issued green bonds sized at AUD500m or more, supported new issuers coming to market and the sector has achieved a series of world firsts that include a green note backed by a portfolio of loans, securitisations and green deposit products. 

Low carbon buildings have been financed using green RMBS tranches and green loans. NAB subsidiary UBank & Westpac have both launched Certified green deposit products for investors that invest only in assets and projects that meet Climate Bonds Sector-based criteria, both examples of world firsts.

The Australian market also has one of the highest densities of Climate Bonds Certifications in the world - an additional indicator of best practice.

Who’s saying what:

Christina Tonkin, Managing Director, Loans & Specialised Finance, ANZ:

 “The Australian and New Zealand sustainable finance market is accelerating with the emergence of loans in both green and sustainability-linked formats. This follows the growth of green bonds over the last three to four years.”

 “The Australian market has developed in line with global best practice, showing the diversity of product, transparency for investors and lenders, innovation in the use of proceeds and commitment to uphold market standards.”

Andrew Hinchliff, Group Executive, Institutional Banking and Markets, Commonwealth Bank of Australia:

 “We are committed to playing our role in limiting climate change and supporting Australia’s transition to a low-carbon economy, but we can only do this by working closely with our customers, communities and industry partners. The Green Infrastructure Investment Opportunities (GIIO) Australia report will help us pursue our goals, by outlining the projects that will make a direct contribution to international climate targets and long-term environmental sustainability.”

David Jenkins, Head of Sustainable Finance, Corporate & Institutional Banking, National Australia Bank:

 "More and more investors are talking to us about climate resilience and how NAB can support the capacity of the financial sector to better support investments in climate-resilient and green infrastructure. The 2019 GIIO report is an essential tool for our industry because it provides a snapshot of the many projects that governments, policy, makers and investors can direct capital towards."

Lyn Cobley, Chief Executive Westpac Institutional Bank:

“Westpac recognises the transition to a net zero emissions economy cannot be achieved without the active support of major financial system actors. Banks, insurance companies and superannuation funds all have a vital role in ensuring investment flows towards the green infrastructure that will help reach this goal. Accelerating green finance, including green bonds, green loans and green underwriting is increasingly the market mechanism to support this transition.”

Sean Kidney, CEO, Climate Bonds Initiative:

“Australia has both the opportunity and the capital to meet its green infrastructure challenges and create a climate-ready, resilient and robust economy, fit for the future. Investing in low carbon transition will create jobs, boost economic growth and help Australia meet its international obligations.”

Australia and the Asia-Pacific 

Green Finance State of the Market (SoTM) Australia 2019 reports that cumulative domestic green bond issuance reached AUD15.6bn (USD11.6bn) as of 30th June 2019, placing Australia third in the Asia-Pacific region behind China (USD91.5bn) and Japan (USD12.9bn) with South Korea at fourth (USD6.2bn).

Australia is tenth overall in cumulative global green bond rankings as of 30 June 2019. Total domestic issuance to date includes 35 deals (some comprising multiple tranches), from 15 issuers.

The 2019 GIIO report also points to Australia’s potential role as a green finance hub for Asia-Pacific in the 2020s, leveraging the green financial expertise of the banking sector and the ready capital and infrastructure investment experience of the superannuation sector, as nations in the region seek to meet their combined infrastructure, energy, development and climate goals. 

We briefly pondered on this prospect way back in December 2016 and enlarged it on further in 2018.  The opportunities for engagement remain.

Policy points for the 2020s

State of the Market puts forward a number of policy considerations for the 2020s including:

• Repeat Sub Sovereign issuance from state-based Treasury Corporations to advance infrastructure, resilience, congestion and emissions goals and act as a signal to markets, regulators and potential issuers.
• Building sustainability into the financial system including implementing recommendations from the Australian Sustainable Finance Initiative (ASFI) and measures to promote green finance and brown to green transition.
• Increased support for domestic green bonds and green infrastructure investment from the superannuation sector and a stronger foreign policy focus by government on green finance opportunities in the Asia-Pacific. ​ 

The Last Word

Notwithstanding limited progress in energy and state-based actions, federally, Australia has yet to develop a substantive framework of mitigation and adaptation policies to fully address the coming climate emergency and create climate resilience.

This is despite a surfeit of clean energy options and exposure to twin 21st-century climate based economic risks: A major global exporter of high carbon energy coupled with an emissions-intensive domestic economy, slow to progress on transition measures.

On the other hand, few nations enjoy such confluence of positive domestic circumstances: a robust banking sector with green finance expertise, a superannuation sector with proven infrastructure capability and willingness to explore new investment models, and widespread community support for increased government borrowing combined with new infrastructure investment partnerships. 

The 2020s beckon, 

Till next time,

Climate Bonds

We launch the 2019 New Zealand Green bonds and Infrastructure report on Friday 30th in Auckland. You can still registerhere. 

Coming up later in 2019  are our 2nd Indonesia GIIO and inaugural LatAm GIIO report. Follow our Twitter and LinkedIn for details. 

Acknowledgements and Thank You

Production of the Green Infrastructure Investment Opportunities Australia 2019 and the Green Finance State of the Market Australia 2019 reports has been jointly sponsored by ANZ, Commonwealth Bank of Australia, NAB and Westpac

In developing both 2019 reports, the Climate Bonds consulted with report sponsors ANZ, Commonwealth Bank of Australia, NAB and Westpac.  Government, industry and financial sector bodies were also consulted. 

We would also like to thank IFM Investors, CEFC, Cbus, HESTA, the Green Building Council of Australia, the Principles for Responsible Investment, GRESB and Responsible Investment Association of Australasia for their assistance. 

Australian Launch events in Sydney and Melbourne kindly hosted and supported by Ashurst Lawyers. 

Highlights:

• 2019 issuance has surpassed USD150bn with August volume of USD7.7bn (+9.8% vs August 2018)
• China: Jiangxi Province of China issued the country’s first municipal GB (CNY300m/USD42m) in June 2019
• Australia: QIC raises AUD300m (USD202m) in first Certified Climate Bond for shopping centre assets
• USA: Strong Muni issuance with 10 deals and USD450m debut from industrial company Owens Corning

​

Don’t miss!

In New York for Climate Week? Moody’s Climate Week Briefing, in partnership with Climate Bonds. Register here.

Climate Bonds has launched a revamped Certified Bonds Database, which allows screening Certified Climate Bonds by sector, country, issuer and/or verifier.

Climate Bond’s new Approved Verifiers Directory facilitates searching by region, verifier name and sector criteria.

Climate Bonds has launched GIIO Australia 2019 and Australia green finance state of the market – 2019. The GIIO report comments on green infrastructure investment state of play and opportunities in energy, transport, water and waste management. The state of the market report provides an overview of the GB market, identifies issuance trends and explores the potential for future growth.

Climate Bonds also launched New Zealand green finance and green infrastructure 2019, a summary report that looks into the evolution of the green and sustainable bond markets to date and provides an overview of green infrastructure investment opportunities.

Green bond deals across the globe – 2019

August at a glance

Green bond issuance for August reached USD7.7bn, translating into approximately 9.8% growth year-on-year. This takes the 2019 total to date above USD150bn, just USD20bn short of 2018 annual volume.

August is usually a slow month for issuance. Over USD12bn of labelled green bonds were issued during the month, but only 63% of that volume met the requirements of the CBI green bond database methodology, the lowest monthly ratio so far this year. Of the USD7.7bn qualifying bonds, USD2.7bn were Certified Climate Bonds. 12 deals totalling USD3.8bn have been excluded mainly due to high working capital allocations and non-alignment with the Climate Bonds Taxonomy.

The highest volume of green bond deals came from non-financial corporates: USD4bn, or approximately 52% of monthly issuance. Compared to August 2018, when this issuer type represented 17%, the figure has almost tripled. The largest deal of the month came from debut issuer E.ON (Germany), which entered the market with a EUR1.5bn (USD1.7bn) bond for energy and infrastructure projects.

Development banks were the second largest contributors at 21% of August issuance, with EIB raising funds for renewable energy and low-carbon building projects in the third largest deal of the month (GBP800/USD972m). Local government issuance picked up from USD1bn in August 2018 to USD1.5bn last month, and this contributed to 19% of August volume.

Issuance from financial corporates significantly decreased, accounting for 1.9% of August volume compared to 33.9% in August 2018 with only three deals, one each from E Sun Commercial Bank (Taiwan), Hangzhou United Rural Commercial Bank (China) and Deutsche Hypo (Germany).

Developed markets accounted for 80.7% of total issuance volume. Germany dominated in August with more than 42.3%, followed by the US (28.8%) and France (3.6%). China led the way in the EM markets with USD217m of a total volume of USD520m, which compares to much stronger issuance from China in August 2018: USD2.4bn.

Repeat issuers accounted for 59% of issuance in August. We saw 11 debut issuers.

Funding for transport and energy dominated issuance, with transport totalling USD3bn (39%) compared to USD1.2bn (17%) in August 2018. Water projects showed a sharp dip compared to last year from USD1.5bn to USD100m in 2019.

Note: In August, we included Fannie Mae Green MBS issuance of USD2.3bn in July figures.

> The full list of new and repeat issuershere.

> Click on the issuer name to access the new issue deal sheet in the online bond library.

Certified Climate Bonds

QIC Shopping Centre Fund (AUD300m/USD202m), Australia, issued a 6-year bond Certified against the Low Carbon Buildings Criteria of the Climate Bonds Standard, making it the first Certification for shopping centres. The proceeds will refinance the redevelopment of three shopping centres in Queensland and Victoria. Upon completion in 2020, the expected CO₂ emissions reductions will exceed 34%, which is the threshold requirement for a 10-year bond.

Annual reports will be made available on the QIC website. They will be reviewed by Sustainalytics or another external reviewer. The reports will have information on the allocation of proceeds, as well as descriptions and qualitative impact indicators about the shopping centres.

Williams Caribbean Capital (BBD3m/USD2m), Barbados, issued a 4-year bond in June 2019. It is Certified against the Solar Criteria of the Climate Bonds Standard: the first Certification awarded in the Caribbean region. Proceeds are intended to be used to finance the development of new solar PV installations on commercial rooftops and open land.

Throughout the term of the bond, quarterly reports will be provided to bondholders. This includes information on the allocation of proceeds, amount of installed solar PV capacity that has been funded as well as amount of electricity that has been generated by these solar PV installations.

New issuers

E.ON SE (EUR1.5bn/USD1.7bn), Germany, entered the green bond market with a senior unsecured 10.5-year bond, which benefits from a second party opinion (SPO) by Sustainalytics. The proceeds are intended to fund renewable energy, energy efficiency and clean transportation projects.

E.ON will provide annual information on allocations such as amounts allocated in each category, year of investment and the financing / refinancing split, as well as the balance of unallocated proceeds. If feasible, an impact report will be provided as well containing quantitative indicators such as capacity of renewable energy connected, CO₂ emissions avoided, number of smart grid components installed, and number of electric vehicle charging stations.

Climate Bonds view: It is encouraging to see another energy giant joining the green bond market, as it signals the crucial need for continued and increasing investments in low-carbon energy infrastructure.

Hangzhou United Rural Commercial Bank (CNY300m/USD43m), China, entered the market with a 3-year bond, for which CCX provided an SPO. The deal will provide funds for the construction of an efficient irrigation system in Aksu City in western China, a vehicle recycling centre with an annual capacity of dismantling 5,000 cars and remanufacturing 350,000 tons of steel, a river dredging project and a solar farm with a total capacity of 13.8MW.

The use of proceeds and progress of the projects in the previous year will be disclosed before April 30^th of each year.

Climate Bonds view: The issuer has provided a clear green bond framework and detailed project information for this deal, demonstrating best practice.

New Jersey Resources (USD4m), USA, debuted with a 10-year bond and has become the first New Jersey corporate to enter the green bond market. The proceeds will support the company’s clean energy investments in the fiscal year 2019, including six commercial solar installations with a total capacity of 50MW.

Climate Bonds view: We are pleased to see more corporates – especially medium-sized companies – leveraging the latent potential of the US green bond market. We would encourage New Jersey Resources to provide post-issuance reporting. Commissioning an external review for their bond would also be consistent with market best practice.

Owens Corning (USD450m), USA, entered the green bond market with a 10-year issue to fund investments in solar and wind power generation facilities, projects to increase energy efficiency and investments in eco-efficient programs, such as increasing the level of recycled material in their products. No reporting commitment was stated.

Climate Bonds view: Owens Corning is the first US industrial company to enter the green bond market, which is in itself commendable. The aspirations of greater energy efficiency and increased use of recycled material are likewise a positive. However, improved transparency and disclosure – such as a clear commitment to post-issuance reporting on achieved improvements – would benefit the market and issuer credibility, especially in the case of new sectors and issuers that fund projects and programs focused on improvements.

Two new US Municipal issuers obtained a ‘BAM GreenStar Bond’ assessment from Build America Mutual (BAM):

• Paradise Township Sewer Authority (USD5m), USA, issued a 30-year municipal bond to fund sewer investments, including various capital improvement projects; and
• Town of York (USD4m), USA, came to market with a 30-year debut green bond to raise funding for water system improvements.

Climate Bonds view: BAM assessments are aligned with ICMA’s green bond principles (GBP). We would encourage issuers that obtain BAM GreenStar Bond assessments to make the formal assurance statement from BAM public, e.g. by including it in pre-issuance documentation. We also encourage more extensive disclosure on proposed and actual proceeds allocated as well as information on the development of the projects.

Pennsylvania Economic Development Financing Authority (USD50m), USA, entered the market with a 20-year green muni issue. The proceeds will be used for pollution prevention and control, which includes mainly projects that focus on the improvement of non-ferrous metals’ recycling and the beneficial re-use of ash. The remaining funds will go towards machinery and equipment used for solid waste handling and processing supporting energy-from-waste infrastructure and other sustainable waste management solutions.

Climate Bonds view: It is great to see another US agency issuing debt for waste management projects. This bond brings total issuance for waste management projects from US Munis to USD1.1bn.

Portland Water District (USD7m), USA, came out with a 20-year municipal bond that is intended to fund cleaning, relining, repair and replacement of water mains, service lines, valves and related appurtenances. Expenditure of the use of proceeds will be reported in the annual report until all the proceeds of the bond have been fully allocated.

Climate Bonds view: This issuance is the second from Portland, bringing the cumulative issuance to USD21m.

San Diego Association of Governments (USD335m), USA, entered the green bond market to fund the existing ‘San Diego Trolley Blue Line’ light rail system, which will extend over 10.92 miles across the County of San Diego. It aims to enhance the connections between academic institutions, medical centres and research hubs, and link lower income communities to health care, employment and activity centres in the University City Community.

SANDAG commits on reporting on the use of proceeds annually, until full allocation. Information on design and operational characteristic of the project, which are in line with the overarching objective of improving mobility and supporting sustainability in the area, might be disclosed as well. 

Climate Bonds view: Investments towards urban transit are essential to achieve decarbonisation of the transport sector. This is particularly important in the US where the transportation system is heavily reliant on personal vehicles. The project is also helpful as it facilitates mobility in the region.

University of Vermont and State Agricultural College (USD38m), USA, issued a 30-year municipal bond which will fund the construction of a new event centre, renovating the hockey arena and converting the existing gymnasium to a recreational facility. The new centre construction, comprising of 96% of total proceeds, will be constructed to LEED Silver specifications.

Climate Bonds view: Post-issuance disclosure on the progress of projects funded with this bond is encouraged to conform to best practice. LEED Silver is a respectable certification level, but we hope to see rising ambitions among issuers to achieve higher certification levels and better energy performance.

Visit our Bond Library for more details on all August deals.

Bonds issued before August 2019

Jiangxi Province of China (CNY300m/USD42m), China, has issued a 30-year municipal bond that benefits from an SPO by Lianhe Equator. This deal from June 2019 marks the first municipal green bond from China. The proceeds will be fully allocated to two utility tunnel projects.

Climate Bonds view: Together with Xinjiang, Guangdong, Guiyang and Zhejiang, Jiangxi province is a green finance pilot zone in China. We look forward to more issuance from the Chinese public sector, particularly from these pilot zones.

Utility tunnels – a.k.a. common service tunnels, utilidors or underground pipeline corridors – are underground passages built to house utility connections such as electricity, water supply and sewer pipes, as well as telecommunications lines (fibre optics, TV and phone cables).  Instead of installing pipelines and cables individually, a tunnel that carries multiple facilities could enable easier subsequent repair and renewal with limited need for surface excavation. Therefore, it is considered as an eligible urban infrastructure by both China’s local green bond catalogue and Climate Bonds Initiative. Accommodating gas pipeline in the tunnel – as is the case here – is not ideal, but we included this bond nonetheless, considering the overarching benefits of having the tunnel infrastructure itself, which can avoid negative impacts on air quality, vegetation, landscape, and soil use in the life cycle of the pipelines. Furthermore, we considered the fact that gas pipelines can also potentially be used for biofuels and hydrogen in the future.

Athon Energia S.A. (BRL40m/USD11m), Brazil, brought to the market a 10-year private placement in July 2019 that benefits from an SPO by Sitawi. The proceeds will finance six solar PV projects in five Brazilian states, all falling under distributed energy generation (i.e. above 75kW and under 5MW) and with commercial contracts in place. One is already operational, while the other five are expected to be completed by April 2020.

The issuer has stated it will provide regular reports on its website. These will include the allocation of proceeds until full allocation and the environmental impacts, namely renewable energy generation in GWh and GHG emissions avoided in tCO2e, until bond maturity.

Climate Bonds view: The focus on distributed generation of solar energy is important as it can increase network resilience and add independence for end users – we hope more green bonds will support this expansion, possibly even from energy companies that traditionally operate via more centralised generation structures.

Anshun Automobile Transport Company (CNY130m/USD19m), China, debuted with a 6-year green ABS in July 2019. The 7-tranche deal is backed by ticket receivables from bus and coach services in Anshun city, Guizhou province. Due to the karst topography in that area, high speed passenger rail has less cover in the region whereas coaches are more popular for intercity travel. 

Climate Bonds view: This is the second green ABS deal backed by cash flows from public transport in Guizhou province, after Guiyang Public Transport’s debut issuance in March 2017 (see August 2017 Market Blog).

Similar to other ABS deals from China, the detailed information on the underlying asset pool and planned use of proceeds is not available at issuance. We will keep tracking the updated details in the near future and the annual post issuance report next year.

Ergon Perú (USD222m), Peru, debuted in July 2019 with a 15-year green bond private placement, which was rated E1/81 by S&P. The proceeds will fund several small-scale PV systems in off-grid rural areas in the north-central and southern regions of Peru. A report containing environmental key performance indicators will be published on a quarterly basis. This entails indicators such as tons of carbon dioxide and greenhouse gas emissions avoided.

Climate Bonds view: We welcome Peru’s fifth green bond issuer to the market debuting with the second largest bond so far. Ergon Peru follows the trend of previous issuers and will finance energy projects with the proceeds. We look forward to more sector diversification in the future as the Peruvian green bond market grows.

Japan Prime Realty Investment Corporation (JPY5bn/USD46m), Japan, entered the green bond market in July 2019 with a senior-unsecured bond rated Green1 by JCRA. The company will invest the proceeds in properties that have been awarded 3 stars or more under the DBJ Green Building certification scheme or a B+ rating or higher under the CASBEE-Building system.

The issuer has committed to reporting on the status of proceeds allocation, number of eligible assets, third-party certification level obtained by each eligible asset as well as total floor area of the asset pool. In addition to that, impact indicators will be disclosed including energy consumption, CO₂ emissions, and water consumption.

Climate Bonds view: As we forecasted in our Japan Green Finance State of the Market report published in February 2019, the Japanese REIT sector has become more active with 9 bonds issued year-to-date to a total of USD407m equivalent. This illustrates the potential of leveraging green finance in the real estate sector.

Tongling Construction Investment Holding Co.,Ltd. (CNY600m/USD87m), China, issued a 3-year bond in July 2019, for which Zhongcai Green Financing provided a second party opinion. According to the limited disclosure from a news release, all proceeds of this bond will be used to refinance for the project “Xihu District Water Ecological System Improvement Project”.

Climate Bonds view: Although a specific description of the use of proceeds is not available yet, water ecological systems management and improvement qualifies as eligible adaptation measures. Further analysis will be carried out once more information is available. Tongling Development Investment Group is the local government financing vehicle (LGFV) of the Tongling city government. We hope to see more LGFVs using green bonds to refinance low-carbon infrastructure.

Millicom (SEK2bn/USD210m), Sweden, issued a 5-year senior unsecured green bond in May 2019. The deal benefits from an SPO by Sustainalytics. The proceeds will go towards energy efficiency improvements to data centres, its network and measures related to building design and upgrades, network solutions, and enhanced monitoring. The acquisition of spectrum and the renewal of existing spectrum licenses to expand and maintain high-quality coverage to unconnected communities and underserved communities, as well as targeted investments in social programmes are also included. 

Climate Bonds view: A lot of Swedish issuance has come from public sector entities and the property sector, so it is good to see further diversification. ICT in particular has the potential to improve operational efficiency in public service delivery and business, reduce the need for travel (and related emissions) and power the implementation of systematic energy performance monitoring.

The bond was previously in pending, while we assessed allocations to social programmes, but it is now our understanding that these are expected to be relatively small and will be delivered in tandem with energy efficiency improvements and network roll out. We would encourage issuers to specifically link related climate and social outcomes from projects.

Nagoya Railroad (JPY1bn/USD9.1m), Japan, took out a 4-year term loan in March 2019 to finance the construction of office buildings, which aim to achieve CASBEE Rank A and Building Energy Management System (BEMS) certifications. In addition to sound insulation and absorption, the building will use high-efficiency equipment. The issuer will report on the status of CASBEE and BELS certifications and will provide information on the introduction of energy-saving equipment.

Climate Bonds view: We are pleased to see issuance to fund energy-efficient buildings from the transport sector and would welcome more deals from public and private sector issuers upgrading their building stock to reduce their carbon footprint.

Repeat issuers – August

• Acciona: EUR17m/USD19m
• Bazalgette Finance: GBP75m/USD91.1m
• California Pollution Control Finance Authority: USD73.7m
• Deutsche Hypo: EUR5m/USD5.6m
• E Sun Commercial Bank: TWD3bn/USD95.4m
• EIB (European Investment Bank): GBP800m/USD972.3m
• EnBW: EUR1bn/USD1.1bn - Certified Climate Bond
• KfW: HKD 300m/USD38.3m
• KfW: NOK 4bn/USD443.8m
• New York MTA: USD428.6m
• Reykjavik Energy: ISK2bn/USD16m
• SNCF: EUR100m/USD112m - Certified Climate Bond
• SNCF: EUR100m/USD111.9m - Certified Climate Bond
• SNCF: EUR50m/USD56m - Certified Climate Bond
• San Francisco Bay Area Rapid Transit (BART): USD643.5m
• Telekosang Hydro One Sdn Bhd: MYR590m/USD208.1m
• Vasakronan: SEK1.2bn/USD123.7m
• Vasakronan: SEK200m/USD20.5

Repeat issuers before August

• City of Ottawa: CAD200m/USD152.2 - July 2019
• Deutsche Hypo: EUR5m/USD5.6m - July 2019
• Export Development Canada: CAD500m/USD379.7m - July 2019
• Fannie Mae: USD2.38bn - July 2019
• JRTT: JPY55.3bn/USD497.7m – Certified Climate Bond - March 2019
• Korea Development Bank: EUR500m/USD566.1m - July 2019
• LBBW Landesbank Baden-Wuerttemberg: EUR500m/USD556.2m - July 2019
• Mitsubishi UFG: EUR500m/USD561.9m - July 2019
• Sichuan Railway Investment Group Co.,Ltd(SRIG): CNY1.8bn/USD262m - July 2019
• Vasakronan: USD75m - July 2019
• Vasakronan: EUR10m/USD11.2m - June 2019
• Vasakronan: AUD30m/USD20.9m - June 2019
• Vasakronan: NOK100m/USD11.4m - May 2019
• Vasakronan: SEK200m/USD21.6m - April 2019
• Vasakronan: JPY10bn/USD90.4m - March 2019
• World Bank (IBRD): CAD1.5bn/USD1.14bn - July 2019

Pending and excluded bonds

We only include bonds with at least 95% proceeds dedicated to green projects that are aligned with the Climate Bonds Taxonomy in our green bond database. Although we support the Sustainable Development Goals (SDGs) overall and see many links between green bond finance and specific SDGs, in particular SDGs 6, 7, 9, 11, 13 and 15, the proportion of proceeds allocated to social goals should be no more than 5% for inclusion in our database.

Marfrig (USD500m), Brazil, issued a 10-year “sustainable transition bond” in July 2019 under a bond framework. The project seeks to contribute to the preservation of biodiversity, the avoidance of land deforestation, the protection of indigenous rights and the avoidance of the use of forced labour within the supply chain.

Vigeo Eiris provided an SPO which notes “Vigeo Eiris values Marfrig’s commitment toward the Protection of the Amazon Biome as well as Marfrig Club initiatives, which are a good first step towards addressing the main environmental and social issues in its value chain. However, in the absence of mandatory on-site audits throughout its supply chain, Vigeo Eiris has a moderate assurance on the ability of Marfrig to effectively manage and mitigate the environmental and social risks associated to the Eligible Project.”

Climate Bonds view: This bond is excluded from the CBI green bond database.

Marfrig is Brazil’s second largest food processor and second largest beef producer globally. Beef production is a complex topic. In terms of mitigation, the main issues with cattle raising in Brazil are related to productivity (output produced per unit of land), which impacts grazing land requirements and can lead to deforestation. A key concern with cattle is high methane emissions (methane is a potent greenhouse gas).

Over the last decade, it has been common practice for most of the Brazilian beef industry to monitor direct cattle suppliers regarding any increase in deforestation within these suppliers’ properties, and suspending purchases where reduction of forest coverage has been identified. However, this has not been the case yet for indirect suppliers (mainly calf growers), which proves to be more challenging to control and is the gap that Marfrig aims to address with its bond. While there has been significant progress in increasing productivity over the years, and these practices present an important step for the sector, the industry is still faced with challenges regarding traceability of livestock, degraded pastures and deforestation along the supply chain.

We do not consider the bond “green” as it does not address climate change mitigation beyond avoiding illegal deforestation from cattle suppliers, in addition to the challenges of ensuring traceability and deforestation. How the cattle, manure and land are being managed on an ongoing basis to reduce and minimise emissions should be considered, including the expansion of degraded pastures. The bigger question of whether livestock management can be seen as green due to its high relative emissions for livestock, compared to other food substitutes, is noted as an ongoing discussion.

This offering attracted considerable media and stakeholder attention around its labelling and objectives, reflecting in part the widening international focus on sustainable agricultural practices, livestock and climate change. It is a brave and encouraging step that Marfrig has taken in opening the debate on livestock management and natural resource impact in supply chains. We look forward to seeing how other potential issuers in the beef industry may learn from the Mafrig issuance and aim to raise the bar on emissions reductions.

Green bonds in the market

• Vasakronan - closed 2 September
• Wallenstam AB - closed 2 September
• Akiem Group - closing 5 September
• Bank of the Philippine Islands - closing 10 September
• Bank of the Philippine Islands - closing 24 September
• Mitsui Fudosan Co., Ltd. - expected closing September
• Sumitomo Warehouse - expected closing September
• Renewable Japan - closing 1 October

Investing News

Moscow Exchange has announced the opening of a Sustainable Development Sector following their roadmap for the formation of a green finance market in Russia. The division in green bonds, social bonds and national projects will be aligned with either ICMA’s Green and Social Bond Principles or the Climate Bonds Initiative’s taxonomy or are aligned with one of the goals of the national projects.

The Swedish pension fund AP3 has announced that it plans to double its investments in sustainability and green bonds by 2025, also targeting to lower their carbon footprint by 50% by 2025.

Commonwealth Bank of Australia restricts fossil fuel lending and commits to exit thermal coal in their Environmental and Social Framework. The bank will no longer lend capital for such projects beyond 2030.

Green Bond Gossip

Kenya is looking to issue its first green bond through the Acorn Project. It plans to raise KES5bn (USD48m) to finance sustainable and climate-resilient student accommodation. Bond sales will be restricted to sophisticated investors.

Germanyintends to issue a climate bond with a guaranteed return of 2% a year and a maturity date in 2030. The deal will be done through state bank KfW, Germany’s largest green bond issuer with over USD22bn issued to date.

Infrastructure bank CIFI is planning to issue a bond that will refinance a previously issued green bond and finance renewable energy and water treatment projects in Panama.

Phone carriers Orange SA and BT Group Plc both plan to issue bonds that fund environmentally friendly projects. The funds will serve to replace copper wires or build 5G networks that enables cities, factories and homes to be more efficient.

The Conservation Fundannounced its first green bond issuance together with Sustainable Conservation raising between USD100m to USD150m. Proceeds from the offering will be used primarily to increase the scale of its Working Forest Fund® conservation initiative, dedicated to mitigating climate change, strengthening rural economies and protecting natural ecosystems by the permanent conservation of at-risk forest landscapes.

Readings & Reports

Bretton Woods Project published a report on the role of multilateral development banks (MDBs) in sustainable finance. It addresses the issue that not all planned infrastructure projects are climate resilient and aligned with the low- or zero-carbon targets. It advocates for a unanimous definition of ‘sustainable infrastructure’ by MDBs as well as mainstreaming this in their infrastructure lending approach.

The IPCC provides an update on the current knowledge on Climate Change and Land in their newly released Special Report. It focusses on greenhouse gas fluxes in land-based ecosystems, land use and sustainable land management linked to climate change adaptation and mitigation, desertification, land degradation and food security.

Cristina Banahan from ISS Corporate Solutions advocates for a Green Standards Committee and calls for more regulation. This would facilitate a clear definition of what is considered a green bond. In addition to that such a committee represents a body that can require better disclosure and oversight and make sure there are no conflict of interests between second party opinion provider and issuers, which are purchasing ratings.

McKinsey & Company published a report on a study, which found that investors are not able to process sustainability reports readily in order to make informed investment decisions because there is a multitude of different standards. McKinsey suggests reducing the number of standards which would be beneficial for both investor and issuers. The report also discusses a number of measures to made sustainability reporting more meaningful for all stakeholder groups.

Paris Agreement Capital Transition Assessment has launched their 2°C Scenario Analysis tool which is supported by the UN Principles for Responsible Investment. It allows users to integrate climate objectives and long-term climate-related risks into portfolio management. This includes a stress-testing module and methodology documentation.

The World Resources Institutecritically looks at the agenda of 181 CEOs of the largest US companies who have recently released their new Statement on the Purpose of a Corporation. The commentary calls for more action with set sustainability targets.

'Till next time,

Climate Bonds