December Market Blog: Nigeria issues 1st African Sovereign Green Bond & its Climate Bonds Certified! IRFC and PFC Certified from India: plus US, Swedish, Italian, German, Malaysian, Japanese and Chinese issuance and more!

A December surge pushed 2017 issuance to a global recordof USD155.5bn - 40 issues, 12 from new issuers. Read more and scan our seven super trends for 2018.

And don’t forget the Climate Bonds Annual Conference and Green Bond Pioneer Awards. Early Bird tickets only until end of Jan. Details here.

New issuers

Certified Climate Bonds

Federal Government of Nigeria – NGN10.7bn (USD29.7m)

The Federal Government of Nigeria’s sovereign Certified Climate Bond has multiple claims to fame. It is the first ever Certified sovereign green bond and the first African sovereign green bond. And the first Nigerian green bond. We announced these remarkable achievements in our blog last December, now let’s dive into some additional detail.

The bond has been Certified under the Climate Bonds Standard for Solar and Land Use Change Criteria. It will finance solar generation, contributing to the achievement of 13,000MW of off-grid PV, and afforestation projects.

The Certified Green Bond is the first offering of a wider NGN150bn (USD420m) green bond program. The wider eligible project categories outlined in the framework are:

• Mitigation – energy efficiency, resource efficiency, improved electricity grid, renewable energy and clean technology
• Adaptation – sustainable forest management

Nigeria’s sovereign green bond was awarded a GB1 (Excellent) Green Bond Assessment rating by Moody’s.

Well done Nigeria!

DNV GL provided the Assurance report.

Power Finance Corporation - USD400m

India’s state backed Power Finance Corporation (PFC) issued its debut green bond, which has been Certified under the Climate Bond Standard for Solar and Wind. The bond will contribute to the Indian Government’s plan of increasing renewable energy sources to 175GW by 2022, with 100GW coming from solar energy and 60GW from wind energy.

The USD400m, 10-year bond is listed on the London Stock Exchange. It marks PFC’s return to the international bond market after almost twenty years.

Nominated assets under the framework and eligible for future bonds are:

• Renewable Energy – solar, wind, bioenergy, hydropower, geothermal, sea and ocean derived energy sources;
• Energy distribution and management – transmission and grid infrastructure, smart systems and meters, heating management;
• Energy storage – hydro storage systems, thermal heat storage, new technologies;
• Energy efficiency technology and products as well as energy efficient processes and systems;
• Cogeneration, tri-generation, combined heat and power;
• Waste heat recovery;
• Electrical Vehicles.

KPMG provided the Assurance report.

Underwriters: Barclays, SBI Securities, Standard Chartered.

Indian Railway Finance Corporation – USD500m

IRFC, the finance arm of the giant Indian Railways, became the 6^th largest Indian issuer when it closed its debut green bond and the issue helped India secure 9^th place in the 2017 Top Ten national  rankings.

We commented on the bond in a previous blog and here’s some more details.

The USD500m green bond has been Certified under the Climate Bonds Standard for Low Carbon Transport.

Proceeds will finance eligible projects under its Dedicated Freight Railway Lines and Public Passenger Transport program.

KPMG provided the Assurance report.

Underwriters: Barclays, HSBC, MUFG Securities, Standard Chartered.

Local Government

East Bay Regional Park District - USD74.6m

East Bay Regional Park District’s inaugural USD74.6m green bond is one of four US muni deals in December 2017, which contributed to making California the second largest US state for sub-sovereign issuance in 2017.

Proceeds are expected to contribute to the following project categories:

• Land acquisition to be included in parks owned and managed by the District or to create wildlife corridors;
• Habitat protection to improve habits for plants and animals;
• Trail development to create bicycle and pedestrian trails; 
• Sea level projects to improve the shore land to mitigate or adapt to rising sea-levels. 

All project categories look – and we think are – pretty green.

Acquiring land to maintain its natural condition implies the avoidance of potential loss of sources of carbon sequestration, therefore preventing an increase in GHG emissions, which is great.

The development of bicycle and pedestrian infrastructure is an important factor that can contribute to the reduction of emissions from the transportation system, through an increased availability of low carbon transport modes which can create an incentive to reduce the use of cars and other high-emitting vehicles.

We haven’t seen a lot of sea level projects, but they essentially belong to the adaptation category and can produce clear environmental benefits by protecting habitats from sea level rise.

Moody’s assigned the bond a Green Bond Assessment of GB1 (Excellent).

Underwriters: Bank of America Merrill Lynch.

California’s pushing hard on green bonds, they were the first US state to reach USD5bn in green muni issuance in November last year and Treasurer Chiang is keeping up the momentum in 2018.

We have more to come on US green munis soon, so stay tuned.

City of Malmö - SEK1.3bn (USD153.2m)

Sweden’s City of Malmö’s SEK1.3bn debut green bond will finance eligible projects within the following categories:

• Renewable Energy;
• Energy Efficiency; 
• Clean Transportation; 
• Climate Change Adaptation; 
• Eligible Green and Energy Efficient Buildings based on the following criteria:
  
  1. third-party certification standards such as Miljöbyggnad (Silver), BREEAM (BREEAM-SE Very Good, BREEAM in-use Very Good) or LEED (Gold); or
  2. local schemes such as the Svanen Ecolabel or the Miljöbyggprogram (Grade B); or
  3. the Swedish building norms BBR (Boverket Byggregler).

All eligible properties need to have at least 15% lower energy use per square meter than required by BBR.

• Environmentally Sustainable Management of Living Natural Resources; 
• Pollution Prevention and Control; 
• Sustainable Water and Wastewater Management.

Projects related to pollution prevention and control will focus on removing chemicals, metals and other hazardous substances from the soil, while water and wastewater projects will aim at limiting the release of substances in coastal waters that cause eutrophication – the excessive build-up of nutrients in the water which leads to increased algae growth and oxygen depletion.

For green buildings, there are quite a few criteria listed in the framework, so let’s take a closer look.

High certification levels have been set for all three cited third-party certification standards. While LEED “Gold” is in compliance with our Taxonomy and Miljöbyggnad Silver is considered the norm in Sweden, aiming for even higher certification levels, such as Miljöbyggnad Gold and BREEAM “Excellent”, would have demonstrated an even greater commitment.

As for local programme schemes, Miljöbyggprogram is a self-assessment programme based on three certification levels, where “Grade B” is the second highest, while the Swanen Ecolabel is awarded when a certain threshold is passed, which can vary by building type.

In their second party opinion, Sustainalytics states that both local programme requirements are comparable to the third-party certification standard levels and that the 15% higher energy efficiency requirements compared to the Swedish building norms will also lead to significant energy savings.

Sustainalytics provided the second opinion.

Underwriters: Handelsbanken.

Government-backed Entities

Ferrovie dello Stato Italiane SpA - EUR600m (USD713.9m)

The EUR600m green bond places FS Italiane as Italy’s second largest issuer to date, contributing to securing the country’s 12^th place in global rankings for 2017. Demand exceeded EUR1.3bn, with offers from 115 investors of which more than 60% international.

Use of proceeds will be allocated to renewing the company’s Public Transport Rolling Stock through the following eligible projects:

1. New Electric Multiple Unit trains for regional passenger transport; 
2. New High-Speed Trains “ETR 1000”.

Both projects comply with our Low Carbon Transport Taxonomy, and so are easily identifiable as green. Investing in rail infrastructure, especially long distance trains, will be a key contributing factor in reducing GHG emissions from transportation. Good rail networks incentivise use, while higher passenger capacity magnifies the impact of lower emissions compared to planes and ICE cars and vehicles.

Sustainalytics provided the second opinion.

Underwriters: Crédit Agricole CIB and HSBC acted as Joint Structuring Green Advisors. Banca IMI, Barclays, Crédit Agricole CIB, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan and SG CIB, acted as Joint Lead Managers and Joint Bookrunners.

Landesbank Baden-Wuerttemberg – EUR750m (USD884.4m)

With its first green bond of EUR750m, Landesbank Baden-Wuerttemberg joins a pool of 13 German issuers to date becoming the largest green bond from a German bank, bar development bank KfW. The bond also achieved the tightest spread amongst all German senior unsecured bonds, underlining high investor interest.

Proceeds will be allocated to the following eligible projects:

• Renewable Energy: 
  
  • Onshore and offshore wind;
  • Solar;
  • Connection infrastructure from renewables to grid and network transportation.
• Green Buildings:
  
  • New and existing buildings which are in the top 15% of low carbon buildings in Germany;
  • Refurbished buildings in Germany, which have undergone major refurbishments since 2007 under the German energy savings ordinance (EnEV) and which can demonstrate energy consumption that is no more than 40% higher than that of a comparable new building;
  • New, existing and refurbished buildings which have been awarded at least a LEED “Silver”, DGNB “Silver”, BREEAM “Very Good”, ENERGY STAR “70” or equivalent level of certification.

Let’s start with the easy part: both renewable energy projects and the related infrastructure used to connect renewables to the grid are green, no red lights so far.

Moving on to green buildings, a top 15% performance threshold of low carbon buildings in Germany is a very good effort level. However, a 40% upper-limit for additional energy consumption in refurbished buildings compared to new buildings does not look particularly stringent. To better assess this requirement, it would be useful to know which standard(s) would apply to comparable new buildings.

As for Green Building certifications, setting standards is good practice and we note that setting all certification levels at the market’s best practice threshold (LEED “Gold”, for instance) would show an even greater commitment.

Oekom provided the second opinion.

Underwriters: ABN AMRO.

Permodalan Nasional Berhad – MYR1.87bn (USD461m)

Malaysian PNB issued their maiden green sukuk of MYR1.87bn last December. Proceeds will finance a range of sustainable features for the Merdeka PNB118 Tower, a 118-storey building aiming to secure LEED certification. The eligible projects mentioned under the green sukuk framework include connections to mass public transport, more water efficient equipment as well as minimum levels of locally sourced and recycled building material.

It is great to see another green sukuk coming to market. While the framework states that the building is aiming to obtain a LEED 2009 Core and Shell certification, it does not specify the tier (Certified, Silver, Gold or Platinum). It also affirms that by seeking a mix of certification schemes – LEED 2009 Core and Shell, Green Building Index and GreenRe– the project will have a “more comprehensive cross section of green features than if using only one certification system”.

Assessing more aspects of the construction and use can provide complementary information. What we would really love to see is an ambition level attached to each certification.

No external review.

Underwriters: MIDF Amanah Investment Bank.

Berkshire Wind Power Cooperative - USD40.2m

Berkshire Wind Power Cooperative issued their USD40.2m debut green bond to refinance the cost of acquisition and construction of the Berkshire Wind Power Project, a 15MW onshore wind farm located in Massachusetts Brodie Mountain.

No external review.

Underwriters: Piper Jaffray & Co.

Non-Financial Corporate

Toda Corp – JPY10bn (USD88m)

With its first green bond of JPY10bn, Toda Corporation brings the total number of Japanese issuers to 9. Proceeds will fund the construction of an offshore wind farm, located near Goto City, Japan, with expenditures including wind turbines, floating bodies and grid connections.

Offshore wind is as green as it gets – well done Toda Corp!

Sustainalytics provided the second opinion.

Underwriters: Mitsubishi, Mizuho, SMBC Nikko Securities.

Asset Backed Securities (ABS)

Harvest Capital Management (Jiashi Capital) – RMB820m (USD127m)

Harvest Capital’s RMB820m deal is the first of its kind in China: a green ABS backed by a commercial real estate mortgage loanCMBS. The underlying asset is an office building owned by China Energy Conservation and Environmental Protection Group (CECEP).

The property has received both LEED Gold certificate and China Green Building Label (GBL) two-star certificate for a variety of green technologies that have been used, including intelligent lighting control system, water reuse and rainwater recycling appliances, electric car chargers, and others.

The CMBS was issued in 3 tranches, the RMB 500mn Senior A class has a coupon of 5.20%, while the Senior B tranche (RMB 279mn) has a coupon of 5.33%, both are AAA rated. All tranches are listed on Shenzhen Stock Exchange.

Zhongcai Lvrong provided a second opinion.

Underwriters: CITIC Securities.

TGOOD (Teruide) – RMB983m (USD153m)

The company is a Chinese producer of prefabricated substations and Electric Vehicle (EV) Charging Systems. Its inaugural green ABS is backed by receivables generated from electric car charging stations, installed in cities across China. Although limited disclosure is available, we included this green ABS because EV charging systems are necessary infrastructure, critical to wide EV adoption.   

This green ABS includes 4 tranches with a maturity of 2.8 years. The RMB542m senior AAA rated tranche has a coupon of 6%.

CCXI provided a second opinion.

Fannie Mae GeMS REMIC – USD764m and USD1.15bn +

Fannie Mae Green MBS – USD24.9bn (2017)

In November and December, US Agency Fannie Mae issued two further deals under its GeMS Real Estate Mortgage Investment Conduit (REMIC) program.

• FNA 2017-M13 includes two tranches (A1 and A2) secured entirely on green collateral comprising USD734m Green Rewards mortgages and USD30m mortgages on Green Building Certified Property.
• FNA 2017-M15 includes four tranches (ATS1, ATS2, A1 and A2) secured on green collateral comprising USD365m Green Rewards mortgages and USD782m mortgages on Green Building Certified Property.

Green Building Certified Property and Green Rewards are part of Fannie Mae’s Multifamily Green Initiative. The program is for multifamily housing (aka apartment buildings) and offers more attractive loan terms to borrowers who provide certified* energy efficient buildings as collateral or will use the debt to make energy or water efficiency improvements.

Under the Green Rewards program, the funds must be invested within 12 months to make property improvements, which target 25% or more reduction in annual energy or water use. Fannie Mae covers the cost of an Energy and Water Audit Report at origination, and the borrower commits to report on the property’s annual energy performance metrics, including Energy Star score. So far so good …

Under the Green Building Certified Property program, Fannie Mae accepts a large number of programs. Some of them are local, others national and most are based on or incorporate Energy Star metrics. Here’s the list*:

• EarthCraft, Greater Atlanta Home Builders Association & Southface
• ENERGY STAR® Certified Homes, US EPA
• ENERGY STAR Multifamily, US EPA
• ENERGY STAR Qualified Multifamily High-Rise, US EPA
• Enterprise Green Communities Criteria, Enterprise Community Partners
• Green Globes New Construction, Green Building Initiative
• Green Globes Existing Buildings, Green Building Initiative
• GreenPoint Rated New Home Multifamily, Build It Green
• GreenPoint Rated Whole Building Existing Multifamily, Build It Green
• LEED BD+C, US Green Building Council
• LEED Homes, US Green Building Council
• LEED O+M, US Green Building Council
• National Green Building Standard (NGBS) Green Home Remodeling Project Certification, Home Innovation Research Labs
• NGBS Green Multifamily Building Certification, Home Innovation Research Labs

We applaud the multifamily landlords for getting their buildings certified! And the lenders who originated the green mortgages! That’s quite an achievement.

But as we’ve noted on previous occasions we quite like to see thresholds and ideally a high ambition level attached to each building certification standard. We would hope that as Fannie Mae continues its journey as a supporter of green finance, the green credentials of the underlying property collateral will exceed the minimum thresholds and/or the agency will raise the bar.

But let’s take a step back to provide some background on the why’s and how’s of including the Fannie Mae bonds in our green bonds database.

Fannie Mae is a government-backed agency, set up to facilitate lending on housing across the US. Here’s how it works:

1. Lenders across the USA originate mortgages. The lenders then sell loan pools to Fannie Mae to free up lending capacity, so they can originate new mortgages.
2. When Fannie Mae purchases the loan pools, it structures MBS deals, essentially a bond transaction secured on mortgage loans. If the underlying mortgage loans qualify under the Multifamily Green Initiative, these are labelled Green MBS. It is these Green MBS that we include in our green bond tallies.
3. Fannie Mae sells the Green MBS – and other MBS – to investors.
4. (optional). Fannie Mae may decide to purchase or retain some of the Green MBS and repackage them into GeMS REMICs. These deals may be backed entirely by green collateral – this was the case with FNA 2017-M10, issued last August. More often they feature some tranches secured on green collateral, and some that are not and we started tracking these deals from the very first one in February 2017: FNA 2017-M2.

We only track REMIC tranches backed by mortgages under the Green Initiative. Also, to avoid double counting, we won’t be including these in our green bond tallies but will be providing ongoing coverage.

The Green Initiative was launched in 2011 but Fannie Mae really stepped up issuance only over the last two years. In 2016 it issued USD3.5bn of Green MBS. The final 2017 figures is not available just yet, but as of the end of November it had issued 1043 Green MBS deals totalling USD24.9bn. MBS secured on Green Rewards loans account for USD18.6bn with the remaining USD6.3bn secured on Green Building Certified Property.

Historically, Fannie Mae didn’t label the MBS which were backed by green collateral pools so there was no easy way of identifying which were green and which were not. However, it has now labelled all of it as Green MBS. It also created a dedicated web page, providing much needed visibility.

The labelling and disclosure mean we can now track Green MBS. More importantly, the greater visibility and regular (at least monthly!) issuance of Agency MBS has huge potential to spur property-backed green bond volumes. And that would be wonderful!

Previously Pending

Fingrid - EUR100m (USD117.5m)

Fingrid’s EUR100m green bond was issued to finance energy efficiency projects related to the development of transmission networks comprising renewable energy connections to the grid and transmission infrastructure upgrades.

If you made it deep into Part 2 of our huge November Market Blog you’ll recollect we’d decided to leave this bond pending until specific project information regarding the degree of grid energy efficiency gains were disclosed.

Additional information provided by the issuer shows that eligible transmission line projects will aim at reducing network losses in a range between 60% and 85%, which demonstrate significant efforts.

We are therefore pleased to announce that Fingrid’s bond has now been included in our green bond database.

Repeat Issuers  

Green Bond Gossip & News Bites

SpareBank 1 Boligkreditt set for first Nordic green covered bond.

Poland’s Finance Ministry confirms the country’s intention to issue a second sovereign green bond in Q1 2018.

Mexico’sClimate Finance Advisory Group (CCFC) released the ‘Green Bond Principles MX’ (in Spanish) green bond guidelines.

Hong Kong Monetary Authority (HKMA) and the International Capital Market Association (ICMA) to co-host Green and Social Bond Principles Annual General Meeting and Conference in June.

India International Exchange (India Inx) listed IRFC’s inaugural green bond on its global securities market.

Nasdaq to launch Nasdaq First North Sustainable Bond Market to meet increased green bond demand.

Events

In Santa Monica in late February?  Don’t miss our Justine Leigh Bell speaking at the California Treasurer’s Green Bonds Symposium.  It’s a 2 day event organised with the Milken Institute and Environmental Finance.

There’s big things ahead for the green muni bond market in 2018. This event is just the beginning.

Moving Pictures

Take a quick look at our 2017 Highlights clip. 1:14secs.

You can watch our Seven Super Trends for 2018 on our YouTube channel.

P.S: Have you already registered for the Climate Bonds Annual Conference 20^th-21^st March? Special early bird offer available until the 31^st January – Register now!

‘Till next time,

Climate Bonds

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