The Swedish City of Gothenburg has made a second foray into the green bonds market with a SEK1.8bn ($273m) 6 year bond. This follows on from a successful SEK500m issuance last year. The bond was sold mostly to Swedish investors but word is that they attracted a few new international investors too. Underwriter was SEB.
Gothenburg's bond is a good model for what we believe will be a new global “Green City Bonds” market. Johannesburg will become the first emerging market Green City Bond issuer in coming weeks. (Expect to see more of these; and keep an eye out for the Green City Bonds project we'll be launching with C40 and others in the near future).
The criteria used for Gothenburg's selection of projects will be the same as used for their previous bonds – i.e. to fund public transport, water management, energy and waste management projects. These criteria were reviewed by CICERO, who also provided a publicly available second opinion on the first bond.
Looking at this second green bond from Gothenburg has enabled us to do a bit of a review of the reporting procedures that were promised at the point of issuance... all looks good so far with up to date reporting on financed projects fully disclosed on the City’s website. Projects include electric car system for cities, district heating and water purification.
We’ve also had two new Swedish issuers this month.
The first was from Stockholms Läns Landsting who issued (AA+) issued a SEK1.1bn ($167m) 6 year bond in 2 tranches. SRI investors made up 67% of the buyers. Stockholm Läns Landstring is the County of Stockholm, made up of 26 municipalities. Its primary role is to provide access to health care, public transportation and regional development.
The green bond is linked to a variety of investment areas which will ‘enable the transition to low-carbon and climate resilient growth’ such as public transport and improved environmental performance of public facilities. According to reports, the bond will be used for two projects: the upgrade of a hospital to achieve LEED Gold status and the upgrade of Roslagsbanan light rail line.
The bond was reviewed by CICERO which is in line with best practice. We certainly trust their judgement but reiterate our concern about LEED being used as a climate standard as we have done elsewhere. We also note that at present there is very little information available publicly. While we recognise that this may change in the coming weeks, it is not in line with the broad principle of transparency promoted by the Green Bond Principles.
Investor were made of: 54% pension funds, 21% asset managers, 21% retail. Underwriter was SEB.
The second was Rikshem, issuing a SEK100m ($15m) bond linked to green property. Rikshem is a real estate company owned by Swedish pension fund AP4.
Even though the bond was a private placement, public reporting has been made available which is in line with best practice. The proceeds are for projects that ‘promote the transition to low-carbon and climate resilient growth’. Eligible Projects include property renovation projects targeting energy savings of minimum of 40%, verified by Imek VVS Rådgivande Ingenjörer AB or Ramböll Management Consulting. As long as appropriate benchmarks are used, 40% is in line with what we would expect in our green buildings standard which is about to be released.
As part of its transparency, Rikshem will provide an annual investor letter, including a list of projects financed, a selection of project examples and a summary of Rikshem’s Green Bond development. The investor letters will be available on Rikshem’s webpage.
While it isn’t mentioned note it in the reporting, we understand from underwriter SEB (yes, you guessed it) that CICERO provided a second opinion.
Sweden is leading the charge with green bonds, with SEK being the currency in which the most deals have been done (by number). Go Sweden and Go SEB!
