BNP Paribas ex­pands green bonds op­er­a­tion

The Pak Banker - - OPINION - Ed­ward Rus­sell-Walling

Green bonds are fast be­com­ing in­de­mand in­stru­ments for cap­i­tal mar­kets in­vestors, and BNP Paribas has re­struc­tured its debt cap­i­tal mar­ket busi­ness to cap­ture this growth. By Ed­ward Rus­sell-Walling.

Green bonds, cli­mate-aligned bonds, sus­tain­able-use-of-pro­ceeds bonds. What­ever they are called - and each name means some­thing slightly dif­fer­ent - eth­i­cal in­vest­ing is be­ing taken more se­ri­ously in the world of fixed in­come. BNP Paribas has sus­tain­abil­ity high on its agenda and is help­ing to di­ver­sify this grow­ing seg­ment into re­tail and emerg­ing mar­kets, high-yield and pri­vate place­ments.

Like the names, num­bers dif­fer but, how­ever they are mea­sured, eth­i­cal bond is­sues have been tak­ing off. BNP Paribas quotes Bloomberg fig­ures show­ing that $85.3bn equiv­a­lent of "sus­tain­able-use-of-pro­ceeds" bonds have been is­sued since 2006, with $37.9bn of them (or 44%) in 2014 alone. Yearto-date is­suance for 2015, it says, is $20.2bn.

It was only 18 months ago when BNP Paribas ap­pointed Stephanie Sfakianos, pre­vi­ously head of li­a­bil­ity man­age­ment, to the new post of head of sus­tain­able cap­i­tal mar­kets, debt cap­i­tal mar­kets (DCM) struc­tur­ing and so­lu­tions. "In the DCM so­lu­tions busi­ness, we were keen to do more in cor­po­rate so­cial re­spon­si­bil­ity [CSR], and this co­in­cided with the time that the green bond mar­ket was tak­ing off," says Ms Sfakianos. "Hav­ing be­gun with mul­ti­lat­eral de­vel­op­ment banks, green bond is­suance was get­ting more trac­tion with util­i­ties, cor­po­rates and banks."

Her own team is small, in­clud­ing a ded­i­cated per­son in Asia-Pa­cific and another in the US, but it has spon­sors in each of the bank's spe­cial­ist prod­uct teams. "The idea is not to have 20 peo­ple repli­cat­ing what is go­ing on else­where, but that ev­ery­one in the bank should en­gage with clients on sus­tain­able mat­ters," says Ms Sfakianos.

Sus­tain­abil­ity is a topic of grow­ing im­por­tance to ev­ery­body, she in­sists. In­vestors are more aware, be­cause they are un­der pres­sure to demon­strate CSR. "And CSR is how we do busi­ness," says Ms Sfakianos. "It used to be looked at solely as risk avoid­ance, but now it's more pos­i­tive, about chang­ing be­hav­iour."

One of those who works with Ms Sfakianos is At­tila Czu­dar. Head of flow rates sales in the Nether­lands, he is also CSR co­or­di­na­tor for G10 rates. "All of our in­vestors are in­ter­ested in sus­tain­abil­ity and re­spon­si­ble in­vest­ment, be­cause their own stake­hold­ers want them to be," says Mr Czu­dar. "The topic will only grow in im­por­tance in the fu­ture."

So far, the bulk of in­vestor de­mand for sus­tain­able bonds has come from Europe, reach­ing its peak in Scan­di­navia and the Nether­lands. "It started with pen­sion funds, but now in­sur­ance com­pa­nies are ask­ing ques­tions," says Mr Czu­dar. "We can help them add value to their poli­cies and pro­cesses - that's now an in­te­gral part of sales." If de­mand has been Euro­pean, and in­sti­tu­tional, most of the early is­suance has come from the sov­er­eign, supra­na­tional and agency (SSA) sec­tor. One of the first is­suers was the World Bank, with whom BNP Paribas re­cently worked to de­velop the World Bank Green Growth bond. The first of its kind, this was tar­geted at re­tail in­vestors, ini­tially in Bel­gium and Lux­em­bourg.

"Re­tail is the holy grail for green bonds," says Jamie Stir­ling, BNP Paribas's head of SSA DCM. "That's be­cause it broad­ens dis­tri­bu­tion and gives the bonds a higher pro­file. Our re­tail sales force told us that in­vestors were look­ing for green in­vest­ments that of­fered a higher yield than typ­i­cal fixed in­come." The Green Growth bond seeks to ad­dress that. While the in­vest­ment is cap­i­tal pro­tected, the seven-year bond pays no coupon. In­stead, its re­turn, if any, is linked to the per­for­mance of the Eth­i­cal Europe Eq­uity In­dex. Is­sued in Jan­uary, the bond was orig­i­nally set at a min­i­mum size of $15m. But ap­petite from re­tail in­vestors was so strong over the six-week sub­scrip­tion pe­riod that this was in­creased to $91m. The pro­ceeds will be used by the World Bank to sup­port projects ad­dress­ing cli­mate change. On the back of this suc­cess in Bel­gium and Lux­em­bourg, the Green Growth bond pro­gramme has since been ex­panded to fea­ture a $103m 'panEuro­pean' tranche, and oth­ers aimed at Switzer­land, France, the US, Asia and, most re­cently, Italy.

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