First green bond listed on NZX
THE Auckland Council listed $200 million of fixed rate bonds on the NZX debt market this week at a coupon rate of 3.17%.
The NZX said it would start planting a native New Zealand tree for every $5 million of sustainable finance.
The listing of the inaugural green bond in New Zealand supported the exchange’s strategic commitment to grow the country’s environmental market, NZX said in a statement.
Auckland Council intended to use proceeds from the offer to refinance existing debt used to buy electric trains and equipment, and to help finance new ones.
‘‘The success of our first green bond issue shows there is clearly strong appetite in the market for investments that have positive outcomes, which is encouraging given the amount of investment earmarked for Auckland’s lowemission public transport solutions,’’ council acting group chief financial officer Matthew Walker said.
The green bonds were expected to be assigned a longterm credit rating of AA from Standard & Poor’s and Aa2 from Moody’s.
Rating agency S&P says the issuance of green covered bonds, backed by assets considered to have a positive environmental impact, grew strongly in the first half of this year.
As market activity increased, investors were inquiring more about green covered bonds and the nature and challenges of green finance.
Such was the demand for information, S&P issued a fact sheet to address the most frequently asked questions, Casper Andersen, director
European covered bond ratings said.
‘‘Despite the recent rise in issuance, there is still plenty of scope for growth. The volume of green covered bonds only represents a fraction of the broader covered bonds market.’’
S&P Global Ratings expected the proportion of green bonds could rise significantly as regulators pushed for greener finance and banks focused increasingly on underwriting the financing of green assets.
‘‘In our view, the emergence of green covered bonds highlights the growing prominence of green finance in the traditional area of covered bonds and offers an alternative mechanism for banks to contribute to financing global climate commitments.’’
In the past, green cover pools had largely comprised green mortgages, Mr Andersen said.
Those types of green properties, whether new or refurbished, residential or commercial, offered significant potential to improve energy efficiency, since the building sector accounted for more than 30% of global energyrelated carbon dioxide emissions.
However, the concept of a green asset extended beyond green mortgages.
While there was no common definition of what constituted a green asset, projects involving assets for generating renewable energy, sustainable transport methods — rail infrastructure and electric vehicles — buildings with green certifications, and water conservation equipment were generally considered green, he said.
Other assets such as efficiency improvements to fossil fuelbased power plants and nuclear plants, in some cases, qualified as green, although the categorisation was sometimes disputed.
It was hard to say what proportion of traditional covered bond mortgage assets were green, as issuers had previously had difficulty identifying the green loans they had already underwritten, Mr Andersen said.
The current set of green covered bonds in Europe used different eligibility criteria for green buildings, which ranged from financing or refinancing new energyefficient buildings to refurbishing commercial or residential properties.
To identify green loans, banks used certain recognised building certifications. Identification was made difficult by certification definitions and methodologies varying across countries, resulting in a lack of comparability.
Additionally, exacerbating those issues were challenges accessing the energy performance of buildings and energy performance certificates due to privacy concerns and data access constraints in certain countries, further limiting the ability of banks to differentiate their green mortgage lending.
Covered bonds backed by public sector debt might offer an attractive source of green finance, particularly if political will supported the public sector to playing a larger role in encouraging green investment.
Issues of public sector covered bonds could use their loyal investor base to offer attractive funding for future public sector green projects, such as renewable energygenerating installations of public sector facilities or funding for other green infrastructure, Mr Andersen said.
NZX head of issuer relationships Joanna Lawn said environmental finance would play a significant role in funding New Zealand’s infrastructure investment into the future. Green bonds would play a major role.
Global green bond issuance could jump to a record
$US250 billion ($NZ369 billion) in 2018, up from $US155 billion last year, according to Moody’s.