June green bond issuance grew 12% year-on-year to USD 14.9 billion (EUR 12.7bn), 40% of which certified. We are republishing here parts of the Climate Bonds Initiative summary for the month.
HIGHLIGHTS
Certification issuance at monthly record high: USD 6 billion
Debut Certified Climate Bonds from Auckland Council, KBC and NAB’s Low Carbon Shared Portfolio platform
Largest solar securitisation to date issued by Vivint Solar
18 debut issuers from 9 countries in June
Fannie Mae published Green MBS deals for April and May: USD 3.7 billion
JUNE AT A GLANCE
Green bond issuance in June totalled USD 14.9 billion, bringing year to date volume to almost USD 80 billion or half of the record 2017 issuance of USD 161 billion. The monthly issuance represents a 12% increase year-on-year, and Fannie Mae’s Green MBS deals from June have yet to be included.
Certified issuance reached a new monthly high at USD 6 billion, 40% of June volumes, with debut Certified Climate Bonds coming from Auckland Council (New Zealand), KBC (Belgium) and NAB Trust Services Ltd (Australia). Sustainalytics verified the majority of deals (40%), followed by Zhongcai Green Financing (26%).
Overall, 89% of June deals benefited from an external review, and 73% of the reviews included a Second Party Opinion.
Over half the issuance came from financial corporates. Top issuer was the world’s number-one bank, ICBC from China, accounting for 16% of monthly volume, followed by DNB Boligkreditt with 12% and TenneT Holdings with 10%. Energy keeps topping use of proceeds allocations at 48%, with Buildings and Transport at 26% and 14% respectively.
China has continued to lead the country rankings, representing 26% of monthly issuance compared to 8% in 2017. The remaining issuance came from Developed Markets, with over a third of volumes coming from the US, Norway and Australia combined.
NEW ISSUERS
Alexandria Real Estate Equities (USD 450m), a US real estate investment trust (REIT), issued a debut senior unsecured green bond with a 5.6-year tenor. Proceeds will finance new, existing or upgraded buildings with a minimum LEED Gold certification.
Climate Bonds view: Obtaining external reviews and establishing a reporting process is best practice in the market and it would be good to see issuers measuring up.
Huneng Tiancheng Financial Leasing (CNY 400m/USD 62m), China, issued a three-year green private placement. Proceeds will be used to finance and refinance purchases of wind turbines which are going to be leased to several wind farm operators in China.
Climate Bonds view: Financial leases are often used by businesses for expensive equipment, providing a finance solution for small and medium-sized companies operating large-scale low carbon projects. We support the use of green bonds by financial leasing companies to fund the purchase of green assets such as wind turbines or solar panels in their arrangements with actual operators (lessees).
Kunshan Public Transport (CNY 280m/USD 42m), China, issued a four-tranche debut green ABS (longest dated bond: three years). The deal features three senior tranches totalling CNY 260 million and a subordinated tranche of CNY 20 million. China Chengxin Credit Rating Company awarded the deal a G-1 green rating (review not publicly available). The issuer will use bus fare receivables from more than 200 routes as underlying collateral for the deal and all proceeds will be allocated to the purchase of low-carbon emission buses and fleet operations.
Climate Bonds view: This is the third green ABS issued by a bus operator in China. Wuxi Communication Industry Group and Guiyang Public Transportation issued the same type of deal to upgrade local fleets.
Mitsubishi Estate (JPY 10bn/USD 91m), Japan, issued a five-year green bond, which benefits from a Sustainalytics Second Party Opinion and achieved a GA1 Green Bond Assessment from R&I (Japan). Proceeds will finance the construction of the Tokyo Tokiwabashi Project Tower-A, which will comprise mainly offices, stores and parking. The project is expected to receive a 4 or 5 star rating under the DBJ Green Building Certification.
Climate Bonds view: A 4-star DBJ Green Building Certification is on the high end of the certification scale. Targeting top-level energy performance would be a further benefit.
Nacka Kommun (SEK 500m/USD 57m), Sweden, issued a four-year green bond, which benefits from a CICERO Second Party Opinion (not publicly available). The municipality’s Green Bond Framework lists a range of eligible categories including renewable energy assets, clean transport, waste and water management, adaptation and energy efficiency measures that reduce energy consumption by at least 25%.
Climate Bonds view: This is the second Swedish municipality to enter the green bond market in 2018. Local governments now account for USD 2.5 billion or 17% of the country’s total green bond issuance.
Ontario Power Generation (CAD 450m/USD 339m), Canada, issued a 30-year debut green bond, which benefits from a Sustainalytics Second Party Opinion. The deal will finance the construction of new run-of-river hydro projects or upgrades/modernisations/maintenance of existing hydro. Specific eligible projects identified by the issuer include:
- Refinancing the construction of the Peter Sutherland Sr. Generating Station – 28-MW hydroelectric station on New Post Creek, Ontario;
- Refurbishing the Ranney Falls Generating Station to add a 10-MW unit, expected to become operational in the fourth quarter of 2019;
The Green Bond Framework also includes solar and wind under the renewable energy category, transportation efficiency and electrification, industrial efficiency eco-efficient products. Nuclear technologies and fossil fuel-based power generation are explicitly excluded from the eligibility criteria.
Climate Bonds view: The power density and GHG emissions for the new Peter Sutherland Sr. Generating Station have not been disclosed at this stage. We will keep monitoring the impact reporting for this information in the future.
Placer County Public Financing Authority (USD 40m), California, issued a two-tranche USD-35-million green US Muni bond and a USD-5-million green private placement, all with a 20.3-year tenor. According to the prospectus, bond proceeds will be used to refinance outstanding loans and revenue bonds financing the County’s mPower Placer Program. The programme is the equivalent of a PACE programme and aims at financing renewable energy, energy efficiency and water conservation improvements in residential and commercial buildings.
Climate Bonds view: This is the first US Muni using green bonds to finance its PACE programme. We hope to see more municipalities following suit to scale up PACE loan availability.
Svenska Handelsbanken (EUR 500m/USD 583m), Sweden, issued a 5-year senior unsecured green bond, which benefits from a CICERO Second Party Opinion. Proceeds can be allocated to renewable energy, clean transport, waste and water management, green buildings or sustainable forestry. The eligibility requirement for large-scale forestry (>1500ha) is FSC or PEFC certification, while small-scale forestry (50-1500ha) needs to be compliant with the Swedish Forestry Act.
Climate Bonds view: For forestry related assets, we take into account the sustainability of both small and large holdings. The Climate Bonds Forestry Criteria – still in public consultation – acknowledge that smallholders may not be able afford an external certification and set out specific requirements to demonstrate compliance with the mitigation and resilience components of the Criteria.
The Forestry Stewardship Council (FSC) definition of small and low intensity managed forests (SLIMF) in Sweden is holdings of up to 1,000 hectares. The issuer’s definition of small forestry holder exceeds this threshold. However, the Swedish Forestry Act provides us with sufficient assurance of the sustainable management of the holdings. In the future, we would like to see eligibility criteria for smallholders without FSC/PEFC certifications including specific requirements on soil health, water management, fire management, riparian areas protection, biodiversity management, species selection and chemical use, as set out in the public consultation document of the Forestry Criteria.
Vivint Solar (USD 811m), USA, issued a two-tranche USD-466-million solar ABS backed by a portfolio of 47,860 leases and PPAs. The portfolio consists of 95% power purchase agreements (PPA) and 5% lease agreements by aggregate discount solar asset balance (ADSAB) of Host Customer Solar Assets. On the same day, the issuer issued USD-345-million privately placed solar asset-backed notes.
Climate Bonds view: This is the largest solar securitisation to date. Solar ABS issuance in 2018 to date already represents 80% of 2017 volumes. We hope to see more solar deals coming to market.
GREEN BOND GOSSIP
Ireland is looking into issuing sovereign green bonds later this year.
Kenya Pooled Water Fund is planning a green bond this year to fund Kenyan water utilities.
Encevo Group published a Green Schuldschein Framework and it benefits from Sustainalytics’ Second Party Opinion.
Microsoft is working with Greenwich Financial to structure a whole new breed of renewable energy financing.
The Fiduciary Duty in the 21st Century programme will collaborate with the PRI and Finance for Tomorrow to develop a French roadmap for sustainable finance, which will be published in November 2018 at the UNEP FI's Global Round-Table and Finance for Tomorrow's Climate Finance Day.
(USD 1 = EUR 0.85)
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