By Paul Raftery
Director at Projects RH
First it is important to define what a “green bond” is. “A green bond is a bond specifically earmarked to be used for climate and environmental projects. These bonds are typically asset-linked and backed by the issuer's balance sheet, and are also referred to as climate bonds.”[1]
They are : “…designated bonds intended to encourage sustainability and to support climate-related or other types of special environmental projects. More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, sustainable water management and the cultivation of environmentally friendly technologies.”[2]
Just before Easter there was huge news in the Australian financial markets a retail group had closed a AUD 400m (USD 300m) green bond issue 4 times over subscribed – Wow! Woolworths Group (ASX:WOW) proposes to use the funds raised “to further reduce its environmental impact by becoming the first retailer in Australia, and the first supermarket globally, to issue Green Bonds certified by the Climate Bonds Initiative (CBI)”.[3]
What will “Woolies” do with the money ? Install commercial solar-roof-tops.[4]
Woolworths do market themselves as “the fresh food people” and have positioned their brand as being environmentally conscious and environmentally friendly.
Woolworths[5] is almost a dualistic retail food retailer (its main competitor is Coles, and together they oversee 80% of the Australian retail food market).
The “Green Bonds” were based on Green Bond Framework in line with the Green Bond Principles 2018 developed by the International Capital Markets Association. Woolworth have prepared a compressive issue document.[6] I am sure it is a template many will copy.
The Bonds were rated BBB[7] and paid 120 bp over the five year swap rate (2.85%) – today the yield is 4.05%. The key is not the price but the diversity of additional investors who were interested. We are seeing global impact and ethical investors wanting both social good and yield this bond offers both. Whilst the funds were raised from only 90 investors there is clearly now a large pool for Woolworths, and others, to return to.
Whilst this not the first issue of “green bonds” in Australia, one can expect other firms to follow this path.
I expect in Australia Projects RH (www.projectsrh.com.au) and internationally Tabatinga (www.tabatingasg.com) we will see international firms using their ability to borrow to fund cost reducing strategies but more importantly to assist renewable energy project by providing not only offtake agreements but also a comfort layer of equity and / or debt to projects which fit into their corporate energy procurement plan.
For Woolworths Group this was not a lot of money and did not impact on their credit rating.
I would expect a lot of corporate treasurers and boards are asking themselves can use this market to raise our environmental profile and reduce our energy costs?
No comments
Post a Comment