Socially responsible investment expanded decisively into fixed income in 2015, with the emergence of sustainability bonds adding to more established products such as climate bonds. For its role in such developments and because it continued to be a key stakeholder in the sector’s corporate governance, Credit Agricole is IFR’s SRI Bond House of the Year.
Climate change and sustainability are fast becoming a standard part of the fixed income lexicon as issuers increasingly seek out debt investors with environmental, social and governance mandates.
And at the centre of this is Credit Agricole with an SRI franchise backed by a sustainable banking team, one of just a handful at investment banks, specialising in the design and placement of products dedicated to socially responsible investors.
“The reason you’re getting a growing list of issuers is because the investors are falling into place one by one,” said Tim Hall, global head of DCM at the French bank.
While a handful of banks can rightly lay claim to being market-leaders in arranging bonds in the SRI field, fewer can also show long-standing advocacy on best practice and market governance.
Credit Agricole has a dominant market share in euro Green bonds, with a highly diversified profile including sustainable and social bond areas.
“Without the best practices and strong governance this market will not be sustainable,” said Tanguy Claquin, Credit Agricole’s global head of sustainable banking.
Credit Agricole was part of the quartet that drafted the Green Bond Principles, which established guidelines to help issuers provide information to investors such as the use of proceeds, monitoring and reporting.
It insists that issuers are transparent in their activities to disclose the assets they want to finance and to obtain a second opinion on their SRI credentials.
The roots of Credit Agricole’s SRI business go back to 2010, when it created its six-strong sustainable banking team. Hall explained that it was created because the bank’s senior management realised that their clients were increasingly concerned with social and environmental issues, although he admits the rapid increase in issuance over the past two years – volumes more than doubled in 2014 and hit a record US$37bn – was a shock.
The explosion means SRI bonds are fast moving beyond where they started out – as a development bank product – although supranational and agency issuers remain the bedrock of the sector. Here, Credit Agricole is no slouch, arranging four out of the five EIB Climate Awareness Bonds issued during 2015, for example. It was sole arranger for five EBRD Green bonds sold in local currencies such as Indonesian rupiah and Russian roubles, and four World Bank Green bonds in Indian rupees.
“In the mainstream Green bond market we’ve been active but we also brought a number of innovations to the market like the first Green covered bond,” said Claquin.
Facing technical difficulties, due to the Pfandbriefe law requiring issuers to have just one cover pool, the sector has been a slow adopter to SRI issuance.
So the €500m five-year Green Pfandbrief for Berlin Hyp, which raised financing for environmentally friendly real estate, has established a template for other covered issuers. The deal is more than just a funding instrument – it is a real solution for the lender, and followed the implementation of a comprehensive sustainability management system.
Credit Agricole also brought a series of local currency Green bonds, including the first benchmark in Swedish kronor for the Nordic Investment Bank.
It was behind the first high-grade European corporate to bring a US dollar deal and the first from a recycling company – Paprec.
Another major SRI deal was ABN AMRO’s €500m bond, the first from a European commercial bank. This deal brought several innovations such as carbon emission reduction reporting and certification from the Climate Bond Initiative. The deal also features verification by independent auditors.
“It … will probably feature as a blueprint for other banks,” said Claquin.
Another high point was the role it played in developing the sustainability, or social, bond market. One deal was a €1bn trade in January for agency ICO, financing SMEs in less privileged areas. Another was the first covered Social bond for Kutxabank, raising €1bn for social housing. Then there was the €750m sustainability bond raised by Land NRW in March. This was the first such transaction from a German state.
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