BNP Paribas expands green bonds operation
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.