The last thing that sustainable debt needs is another label, but the market is nonetheless considering the new concept of "transition green bonds" as high-emitting companies gain confidence to tap a market they have previously avoided for fear of allegations of greenwashing.
In the past two weeks, the market has seen a broader range of corporate green bonds from industrial names as companies unveil detailed plans to radically transform businesses to reach net-zero carbon emissions, and investors get behind that huge task.
"There is an acceptance of the concept of transition, whatever we use to reflect that,” said Paul O’Connor, head of EMEA ESG DCM at JP Morgan.
Last week Finnish packaging and forest products firm Stora Enso (Baa3/–/BBB–) sold its first euro green bond, and Aeroporti di Roma, Rome's airport operator (Baa3/BB+/BBB–), raised an inaugural green issue. Neither company is a natural candidate for green bonds.
French concessions and construction company Vinci (A3/A–) also sold a debut green bond – a €500m eight-year that was priced competitively, but highlighted some of the ongoing sensitivities around the green label.
Vinci’s green bond finances its new Paris headquarters and equity participation in the Tours-Bordeaux high-speed rail link but no assets related to its airports concession business, bankers said.
“Vinci made the decision not to cover the airport business. During the marketing Vinci had a few questions if the airport business was included and concerns around Scope 3 CO2 emissions,” said Stephane Marciel, head of sustainable bonds at Societe Generale.
"I think it was well understood and well appreciated that Vinci structured its inaugural bond the way they did, by hearing and listening to the concerns of some ESG investors. That was good work by Vinci.”
Europe has the largest green bond market – with US$116bn of green bonds issued in 2020 so far, compared with US$98bn in the same period of 2019. Issuance in the Americas is roughly flat at around US$32bn, while Asia volume is US$26.7bn, compared with US$34bn last year.
Green bond issuance by industrial companies globally has more than doubled to US$11.5bn for the year to date, compared with US$4.7bn in the same period of 2019.
"It's very good to see more issuers coming to the market from less obvious sectors because it does reflect that these issuers are also multiplying their efforts and investments to align themselves with the expected carbon-reduction paths," Marciel said.
The so-called "greenium" pricing advantage of issuing green bonds is one reason companies are looking to the green bond market, as is the climbing price of carbon and the impending introduction of the EU's Taxonomy that will require greater reporting on environmental matters.
"The concept of the greenium is gaining traction. Now that companies know that the EU Taxonomy is coming, they are aware they need to provide some reassurance to investors on the resilience of their business model,” O’Connor said.
Stora Enso, Aeroporti di Roma and Vinci received large order books and significant price revisions that are not going unnoticed. Stora Enso’s €500m no-grow 10-year saw orders of €5.75bn, giving leads the ability to cut the spread to swaps plus 95bp, from 140bp–150bp.
Aeroporti di Roma’s €300m no-grow long eight-year green bond priced with a spread of 200bp off the back of more than €3.7bn of orders after being marketed at 255bp initially, and Vinci priced at swaps plus 27bp from initial price thoughts in the 55bp area, securing a negative concession of 3bp.
The Taxonomy is also changing investors’ expectations of what is required in terms of reporting as the buyside becomes increasingly expert at analysing more granular data for sectors and borrowers.
Rising carbon pricing is making projects more economically viable and is also expected to encourage more industrial companies to issue green bonds as they forge new industrial alliances to develop clean technology, such as hydrogen and carbon capture and storage.
This is improving the outlook for issuance next year. "Everyone sees next year as doing really well in terms of green bond growth," said Anjuli Pandit, primary markets sustainability manager at BNP Paribas.