Intesa sells pioneering 'circular-economy' bond

IFR 2311 - 30 Nov 2019 - 06 Dec 2019
4 min read
Tessa Walsh

Italy's Intesa Sanpaolo has become the first bank to issue a sustainable bond dedicated to creating a more circular economy, as the intensifying focus on ESG from investors and policymakers continues to gather momentum.

The €750m five-year senior preferred bond gathered a book of more than €3.5bn and priced marginally inside the bank's traditional bonds, perhaps showing that investors are ready to put a value - a "greenium" - on sustainability and support the idea of a circular economy.

“Investors were willing to give up some yield to be involved in this trade. This is a strong message for Europe and the world,” said Alessandro Lolli, Intesa’s head of group treasury and finance.

The concept of the circular economy has been pioneered by Derbyshire-born international yachtswoman Ellen MacArthur’s foundation, which partnered with Intesa in 2015 and renewed its commitment for another three years this January.

The circular economy aims to redefine growth by using the principles of reducing, reusing and recycling to minimise the consumption of resources and keep production to a minimum.

“The transaction ... is an important step in developing the circular economy,” said Stefano Del Punta, Intesa's chief financial officer.

The five-year bullet was priced at 100bp over mid-swaps, having been announced with initial price thoughts of 120bp-125bp. The coupon is 0.75%.

“We managed to issue the bond at 2bp below the secondary market," said Lolli. "With a circular deal, you’re taking a risk as a first mover; in this case, we have confirmation that we’re on the right track and path."


Intesa is no stranger to ESG. The bank issued a €500m unsecured senior green bond in 2017 to support loans for environmental sustainability, renewable energy and energy efficiency, and in June 2019 funded 75 projects which, it says, prevented 350,000 tonnes of CO2 emissions.

That was followed by Intesa’s 2018-21 business plan, which prioritised sustainable profitability and aimed to make the bank a world-leading model in social and cultural responsibility.

In 2018, Intesa launched a new lab in Milan dedicated to the circular economy and a €5bn credit facility for SMEs and corporates. The new bond supports loans granted through the €5bn fund that meet criteria drawn up by Intesa’s Innovation Centre and the Ellen MacArthur Foundation.

Companies that meet one of five criteria, including production designed to support renewable or recycling processes, are given a loans at a 30bp-50bp discount on the margin that would otherwise have been charged by Intesa.

Around 60 loans have been funded so far, totalling €600m, including a €200m loan for Thames Water and a facility for engineering firm Maire Tecnimont.

The deal has a second-party opinion on its ESG credentials from ISS and the loans will also be externally verified for their inclusion against the criteria. Intesa will provide details of the facilities, use of proceeds and environmental impact in its annual report.


Investors liked the fact that Intesa was dedicating money to the companies that it was lending to through the discount, which was cited as a reason for the bond’s large order book. The bond had a pan-European book, headed by investors from the UK and Ireland.

“In the end, investors are taking Italian credit risk. When you look at the geographic split of investors, the majority was not Italy but core Europe and the UK. This, in my opinion, is a strong and positive message for Intesa and our country,” said Lolli.

Banca IMI and Credit Agricole acted as green structuring advisers and joint bookrunners. ING and Societe Generale were joint bookrunners.

While it was labour intensive to set up the platform and develop the expertise to issue the bond and educate investors on the circular economy, the process proved worthwhile for Intesa, as well as financially rewarding.

“I have no doubt it was worth the work. Sometimes finance can be cold and just about the numbers. But this project had a whole other dimension to it. It was very rewarding as a citizen and a father of young children,” Lolli said.