Fiji consolidates Year of the Sovereigns; China, L.A. & SanFran issue Certified Climate Bonds

Date: Jan 2018

New issuers

Certified Climate Bonds

China Development Bank - USD500m and EUR1bn

China Development Bank (CDB) has just issued its debut green bond – a Certified Climate Bond – for a whopping USD 1.66bn made up of a USD tranche (500m) and a EUR tranche (1bn) in the offshore market.

We briefly touched on the issuance in our blog announcing the USD100bn green bond global issuance record, but let’s have a look at the details.

As set out in CDB’s Green Bond Framework, funds raised through the inaugural bonds will finance projects along the “Belt and Road” countries such as Pakistan, Kazakhstan and Sri Lanka:

  • Energy: offshore and onshore wind farms, hydro-solar projects
  • Transportation: railway infrastructure and metro lines
  • Water: water resource management projects

Examples of nominated projects include:

  • A 1,776-km long rail project with 31 stations located in northwest China. The railway is expected to cover 350 million tons of freight and 40 million passengers per year and reduce approximately 7.60 million tons of CO2 emissions annually.
  • A 49.5 MW wind power project located near the Village Jhimpir in Pakistan. The project is expected to save 55,000 tons of standard coal equivalent per year.
  • A water supply project covering 398km2 in Sri Lanka expected to reach a total water supply of 81,000 m3/d.

Hydro-solar projects may catch your eye as we haven’t encountered this before. Hydro-solar consists of fitting floating solar panels to a hydropower plant. There are two parts of the project to consider when it comes to Criteria: the “solar” part is easily assessable and falls under the Marine Renewable Criteria for offshore solar, whereas the “hydro” part is a bit trickier and since there aren’t Criteria for hydro yet, it’s difficult to say whether the whole asset would classify as green. This means that if CDB decides to allocate proceeds to such projects, further assessment will be required.

The bond received pre-issuance Climate Bonds Certification signalling the issuer’s commitment to financing projects that comply with the Climate Bonds Standard. However, once proceeds have begun to be allocated to projects and assets, the bond will be reassessed and will receive post-issuance Certification only if the requirements for the Climate Bonds Standard are met.

We will keep you updated on further use of proceeds details as more project information is disclosed.

The bond's two tranches were issued on the 9th of November, listed on the Hong Kong Stock Exchange and China Europe International Exchange (CEINEX). The USD500m 5-year bond priced at T+78bps with a coupon rate of 2.75%, and the EUR1bn 4-year bond priced at MS+43bps with a coupon rate of 0.375%, both inside CDB’s secondary curves. For the EUR tranche, there was strong interest in the final pool size reaching over EUR2.25bn and demand from over 99 accounts which enabled a tightening against initial guidance of around 20bps.

Underwriters: USD tranche – Agricultural Bank of China (Hong Kong Branch), Bank of China (Hong Kong), BNP Paribas, China Construction Bank (Asia), Commonwealth Bank of Australia, Credit Agricole, Deutsche Bank and Standard Chartered Bank. EUR tranche – Bank of Communications, China Construction Bank (Europe) Limited, Commerzbank, Credit Agricole, Deutsche Bank, HSBC, ING Bank and SEB.

Los Angeles County MTA - USD471.4m

Los Angeles County MTA issued their inaugural green bond, Certified under the Climate Bonds Standard Low Carbon Transport Criteria.

Proceeds will be used to finance or refinance improvements to the city’s rail transit system, including:

  • construction of a new maintenance facility;
  • existing and new metro lines;
  • construction of the Universal City Station pedestrian bridge;
  • procurement of new light and heavy rail vehicles; and
  • other rail vehicle maintenance and rail facilities improvements.

MTA’s eligible projects listed above are in compliance with the Climate Bonds Low Carbon Transport Criteria. This means that it has to meet specific passenger-kilometre and tonne-kilometre thresholds. If it doesn’t meet these, it means that the infrastructure is not driving deep emissions saving (the main purpose of the Climate Bonds Certification Scheme is to identify assets and projects that are in line with the steep emissions trajectory required to achieve a rapid transition to a sub-2-degree Celsius world).

Why pedestrian bridges, you may ask. How is this relevant? As we mentioned for other bonds, there aren’t any specific Criteria for rail station infrastructure yet, so the project falls under “associated infrastructure” within the Low Carbon Transport Criteria. The pedestrian bridge is part of the station.

First Environment provided the verification.

Underwriter: Wells Fargo.

City and County of San Francisco - USD171.4m

The City & Council of San Francisco issued a USD171.4m Certified Climate Bond to finance part of the new Transbay Transit Centre.

The proceeds will fund two projects:

  • The Train Box, built to accommodate the Downtown Rail Extension with three passenger platforms, six train tracks, and a concourse connected to a transit centre above;
  • Salesforce Park, a 5.4 acre, 1,400-foot long elevated park and a “living roof”.

The projects are in compliance with the Climate Bonds Low Carbon Land Transport Criteria related to public passenger transport. As for the “living roof”, there are no criteria covering this, but it is considered as infrastructure associated with the rail system and is therefore in compliance with the Low Carbon Transport Criteria. (According to the Criteria, just about any other roof would be fine but we like the living one much more!).

Sustainalytics provided the verification.

Underwriter: Stifel Nicolaus & Co.


Republic of Fiji - FJD100m (USD50m)

Fiji used its presidency of the COP23 to announce its sovereign green bond – the third ever sovereign green bond to date! We have already spoken about it in detail in an earlier blog, but here is a bit of extra info.

The proceeds will finance and re-finance projects promoting the nation’s transition to a low carbon and climate resilient economy, in compliance with the Government’s Green Bond Framework and the Green Bond Principles.

Proceeds are expected to contribute to the following project categories:

  • Renewable energy and energy efficiency projects that increase renewable energy to 100% by 2030 and reduce CO2 emissions by 10% through energy efficiency improvement projects;
  • Resilience to climate change for highly vulnerable areas and sectors, such as the rehabilitation and extension of sugarcane farm drainage systems to increase crop resilience and reduce farm flooding risks;
  • Clean and resilient transport, such as upgrading the transport network to include higher climate resilience standards, investments in energy efficient and low emission public transportation systems;
  • Pollution and GHG emission reductions;
  • Sustainable water supply and management, such as the implementation of a water catchment management programme to ensure potable water during the dry season, upgrade of wastewater treatment facilities;
  • Sustainable management of natural resources and eco-efficiency.

We’re very enthusiastic about this bond – ground-breaking for small states to finance climate infrastructure. But, at the moment, our slight niggle is that there are very few details on thresholds or standards that will be used to determine project eligibility.

According to Sustainalytics: “Fiji should specify a minimum performance improvement threshold and strive to achieve that level of improvement for projects financed with the proceeds of the bonds in order to ensure that impacts are meaningful.” We agree.

For building upgrades, for instance, compliance with LEED standards is mentioned but not related to a specific level of certification. High levels of LEED certification have a strong correlation with energy efficiency which is why the Climate Bonds Low Carbon Buildings Criteria considers for eligibility only projects achieving a LEED Gold certification level or above.

Therefore, we await disclosure of more information on the related projects to be able to assess the ambition of this bond.

Sustainalytics provided the second opinion.

Tokyo Metropolitan Government - JPY10bn (USD88.23m)

Tokyo Metropolitan Government’s (TMG) inaugural green bond is the second JPY10bn green bond – the country’s largest green issue to date.

Use of proceeds are divided as follows: smart energy and urban development (49%), sustainable resource & waste management (1%), natural environment conservation (6%), improvements of living environment (10.5%), and adaptation for climate change (33.5%).

A more detailed list of project categories can be found in the second opinion.

It’s great that TMG is (hopefully) getting this giant Japanese bond moving towards green, but there seems to be a lack of detailed project information available. This makes it difficult to assess for each eligible category.

In particular, we would need more information about the standards and thresholds used in each category to determine the eligibility of projects. For example: “green real estate development” is listed as an eligible project and the second opinion notes that some of the projects financed are expected to achieve 50% resource or energy efficiency improvements of 50% - which would be great, but this is an example of the best performing projects and not of criterion for inclusion, which is what’s needed.

More information will be disclosed in TMG’s annual reporting that will be available on their website. This is great, but it’s best practice to have much more detailed information available at issue.

A list of investors who declared investment in Tokyo Green Bonds can be found here.

Oekom provided the second opinion.

Underwriters: Merrill Lynch Pierce Fenner & Smith, Mitsubishi.


City of Ottawa - CAD102m (USD80.3m)

With its CAD102m green bond, the City of Ottawa has become the first Canadian city issuer!

Proceeds will be directed to finance eligible projects belonging to the following categories:

  • Renewable Energy;
  • Energy Efficiency;
  • Pollution Prevention and Control;
  • Clean Transportation;
  • Sustainable Water Management;
  • Sustainable Management of Natural Resources;
  • Climate Change Adaptation and Resilience;
  • Green Buildings.

This first issuance will finance the city’s light rail transit project, which is easily identifiable as aligned with both Ottawa’s and Canada’s environmental mandate of transitioning to a cleaner transport system.

If future bonds intend to finance other categories in the broad range defined above, more details will be needed.

The bond was priced at 22bps above comparable Ontario vanilla bonds and was 2x oversubscribed, signalling a strong market demand.

The bond was placed with 23 investors, the majority of which were Canadian (99%). 96% of investors either had a green mandate or were signatories to the UN’s Principles for Responsible Investment, confirming once again that issuers can benefit from green bonds by attracting dedicated green investors.

Second opinion by Sustainalytics.

Underwriters: Royal Bank of Canada, Toronto Dominion Bank.

Canton of Geneva - CHF620m (USD631.7m)

As announced in our earlier blog, the Canton of Geneva’s green bond marks a first issuance from a Swiss muni. Here are some more details on the bond.

The proceeds will finance green buildings with a minimum of high energy performance (HPE) standard required. For new buildings, the HPE standard corresponds to the MINERGIE label, or the following cumulated criteria:

  • Heating below or equal to 80% of the permitted heating needs;
  • Share of non-renewable energy to cover heating needs and warm sanitary water below or equal to 60% of the permitted heating needs;
  • Respect of target thresholds defined by the norm SIA 380/4 for ventilation/air conditioning and lighting.

The three selected projects that will be financed are:

  • University Medical Centre (Centre Médical Universitaire)
  • Gustave Julliard Hospital
  • Maternity hospital

Ok, the MINERGIE certification scheme is very specific to the local Swiss context, but what does this mean? The scheme covers certification for new and refurbished buildings with low energy consumption and has three main levels - Minergie, Minergie-P, Minergie-A – which differ on the basis of the stringency level of performance criteria for energy efficiency, materials and comfort.

For energy efficiency requirements of new buildings, the energy consumption threshold is set at 55 kWh/m2a for Minergy, 50 kWh/m2a for Minergy-P and lower than 35 kWh/m2a for Minergy-A. For context – buildings which achieve Minergie-P standard are equivalent to passive house standards.

Certification schemes are not easy to compare. However, we note that MINERGIE’s certification process differs from other building standards, such as LEED and BREAM, because it’s not based on point scoring across different categories, but on reaching a threshold level in all three performance criteria. Therefore, MINERGIE has a strong link between the certification and the energy efficiency of the building.

Vigeo Eiris provided the second opinion.

Underwriters: Banque Cantonale de Genève, Credit Suisse, UBS.

Trinity Public Utilities District - USD20.8m

Trinity Public Utilities District’s is one of the latest issuances from a Californian municipality, further contributing to maintaining the US leading position for sub-sovereign issuance.

According to the official statement, proceeds will be directed to refinance the District’s power transmission lines, with 100% of the electricity coming from the Trinity dam hydroelectric power plant, representing the third largest reservoir in California.

No external review.

Underwriter: Raymond James & Associates.

The Metropolitan Government of Nashville and Davidson County - USD89.4m

The Metropolitan Government of Nashville and Davidson County’s issue is the first muni green bond from Tennessee! The issue adds further diversity to the pool of US muni issuers.

Use of proceeds will refinance wastewater management projects, mainly covering costs for the improvement of existing sewer and stormwater management facilities. The rehabilitation of wastewater systems is an important aspect of building climate resilient infrastructure and having a bond financing adaptation projects is broadly positive.

The Metropolitan government has committed to quarterly and annual reporting, which will be publicly available here.

Moody’s assigned the bond a Green Bond Assessment of GB1 (Excellent), which reflects the alignment of the eligible projects to the Green Bond Principles.

Underwriters: CITI, Bank of America Merrill Lynch, Janney Montgomery Scott, Raymond James, Morgan Stanley.

Government agencies and state-backed entities

Altum - EUR20m (USD23.6m)

Latvian development finance institution Altum issued their debut green bond on October 17th. Altum offers state aid for various target groups with the help of financial tools (such as loans, credit guarantees, investing in venture capital funds, etc.).

This is the second bond issued by a Latvian entity, which, in a pretty tiny bond market is rather impressive - Go Latvia!

Eligible projects cover the following categories:

  • Renewable energy: wind, solar, bioenergy;
  • Energy efficiency:
  1. District heating technologies based on renewable energy;
  2. Energy recovery projects;
  3. Investments in non-fossil technologies and processes leading to energy efficiency gains of at least 25%;
  4. Minor renovations of commercial or residential buildings leading to reduced energy use of at least 25%.
  • Green buildings:
  1. Commercial or residential buildings with an energy use per year on an m2 basis of nearly zero (nearly zero energy building) or at least 25% lower than applicable national regulations;
  2. Major renovations of commercial or residential buildings leading to reduced energy use per year of at least 35%.
  • Sustainable transport based on non-fossil fuel and supporting infrastructure.

For bioenergy, energy sources will be short rotation forestry, energy crops, wood wastes, agricultural residues, sewage sludge, industrial residues and municipal bio-degradable waste that are sourced in the region (up to 300 km). A maximum of 20% of the total allocation to renewable energy projects can go towards bioenergy.

Ok, they have listed the energy sources (a good thing) – but, how green are they? Well, waste sources, like agricultural and wood waste, are usually pretty green (making waste into energy). It gets more complicated around energy crops and short rotation forestry, as producing bioenergy from these sources can potentially be both green and not so green.

Energy crops are good when they are not food crops, and when are not planted on land that could have been used for food crops. Similarly, short-rotation forestry enables the energy source to be low carbon as it is used and replanted, used and replanted. Great!... Unless it is replacing natural forest.

We highlight these issues here only to note them and, obviously, to push all issuers to consider them – but, in general, the use of energy crops and short rotation forestry is much better than viable forest or food alternatives. So that’s positive.

For green buildings, near zero-energy use would be fantastic, while 25% lower than national regulations is less ambitious. We don’t know much about Latvian building regulations but in the second opinion CICERO awarded green buildings projects a “medium green”, stating that “the reduction targets are good, but not the very best” and that “stricter standards for long-lasting assets like buildings would have been required for a darker shading.” We agree.

Underwriters: SEB.

Agder Energi - NOK750m (USD91.53m)

Agder Energi, the Norwegian power company, issued a USD91.53m green bond to finance new and existing large hydropower plants. Agder Energy is owned 54.5% by municipalities and 45.5% by state-owned Statkraft, a leading international hydropower company, Europe’s largest supplier of renewable energy, and the Nordic region’s second largest producer of electrical power.

You may have noticed that we seem to have issues around large hydropower investments – particularly new projects. One reason for this is that our academic expert group has explored numerous climate problems with reservoir emissions from hydro that can make some projects have similar emissions to fossil fuels.

Climate Bonds Criteria for hydropower haven’t been finalised yet. So, while not yet final, we are busy trialling some metrics which the criteria might involve as a way of assessing hydro projects – these include a power density ratio or GHG emissions value (g/kWh) as a metric to measure reservoir emissions.

For Agder Energi’s hydro projects, existing projects produce annual emissions of below 1 g/kWh. For the two new damns located in Skjerkevatn, a Life Cycle Assessment has been performed - which includes raw materials extraction, construction and operation of the plant – and predicts that emissions from the power plants will be of around 4.2 g/kWh.

The current threshold that is being debated for emissions in the hydro Criteria is much higher than this so, from this perspective, Agder Energi’s projects would be eligible.

CICERO provided the second opinion.

Specialfastigheter - SEK1.25bn (USD150.7m)

Specialfastigheter, a Swedish state-owned real estate company, recently closed their debut green bond. The company has SEK23bn AUM and owns and manages special buildings such as prisons, institutional care, and properties used by defence, police and judiciary bodies.

The issue represents a European first in terms of financing a wide range of buildings for the state sector.

As laid out in the company’s Green Bond Framework, use of proceeds will be allocated to projects including:

  • green buildings: new property construction must meet at least Miljöbyggnad “Gold” and existing properties must meet or exceed Miljöbyggnad “Silver”;
  • energy efficiency in the property portfolio;
  • environmentally sustainable management of living natural resources;
  • renewable energy;
  • sustainable water and wastewater management.

As previously noted, building certification schemes are not easily comparable across different markets. Miljöbyggnad is used in Sweden and is known for being detailed, particularly in calculating energy efficiency. Further, they have committed to achieving Gold for new construction – the top level of this scheme.

Casting our minds back, we couldn’t think of many Swedish issuers who aimed for Gold (Silver is the norm), so this is pretty good!

Specialfastigheter has committed to annual reporting on their website of both the use of proceeds and relevant asset level indicators and measurements, with the first report expected to be published in April 2018.

The issue was met with great interest by investors and was oversubscribed.

Sustainalytics provided the second opinion.

Underwriter: Handelsbanken.

Wider thematic bonds

City of Paris ESG Bond – see the Sustainability Bond Framework for details.

Gossip and News Bites

GlobalCapital features Emmanuel Macron’s powerful piece on green finance.

Indonesia – The Financial Services Authority has stated that it is in the process of finalising regulation on “environmentally-sound debt” (green bonds).

UN Climate Change secretariat awards Kommuninvest’s green finance model.

The EU has awarded an EUR2.4m grant to Global New Energy Finance and 7 partner organizations to develop the EuroPACE programme, inspired by the US PACE financing model.

More rumours about a Nigerian sovereign bond before the end of the year.

Miami voters have just approved a USD400m bond to finance tackling climate change and affordable housing.

ASEAN releases Green Bond Standards.

Ghana to issue its first Green Bond.

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