Green CP: a step in the right direction
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Green CP: a step in the right direction


Rabobank has launched a green CP and certificate of deposit programme, opening up the world of short-term debt to SRI investors for the first time.

Unlike regular green bonds, where investors receive thorough reports on the impact of the projects their investments fund, commercial paper has too short a tenor to be tied to particular assets. Mostly, it is used to meet the bank’s liquidity needs.

But as Rabobank is an ESG leader, meaning it is in the top 5% of Sustainalytic’s rankings of sustainability, it has created a programme that explicitly mentions this.

Apparently, demand for the product is such that it was able to issue 2bp tighter than its usual CP levels. 

Because the ESG leader status is mentioned in the documentation, if Rabobank were to fall out of the top 5% of the rankings, it would have to revert to its usual programme and, presumably, forfeit this cheaper cost of funds.

While it might seem counterintuitive to praise an initiative that rewards issuers for raising debt in a perfectly ordinary way, with no specified asset pools or new projects to help the environment, this is exactly what the broader green capital markets need.

Green bonds, and the culture of reporting on the impact of the proceeds of debt raising, are an important initiative. 

However, watching the climbing volume of SRI-labelled bond issuance might give a false impression. It would be wrong to conclude that every dollar, or even a majority, of the $89.7bn raised this year — according to Climate Bonds Initiative figures — is new money driven into sustainable finance through the funnel of the green bond market.

Much of this money could very easily have been raised in the conventional bond market, funding projects that would have gone ahead even if no one had ever heard of green bonds, conveniently relabelled to salve investors’ consciences.

But by rewarding exceptional ESG issuers with a tangible funding advantage, a move like Rabobank’s really does reward the right issuers.

Crucially, Sustainalytics’ rankings do not simply reward top of the food chain multilaterals and solar panel manufacturers; they reward those making the biggest improvements in environmental, social and governance factors. This means that investors can help finance the liquidity needs of companies as they transition to becoming more sustainable.

Offering an improvement in the cost of funds is vital if the SRI market is to make a tangible difference to the environment. That appears to be taking place gradually, but it remains tied to the vagaries of supply and demand.

While lenders offering products such as the Philips revolving credit facility are happy to bake preferential funding for ESG excellence into the documentation, typical green bond investors are unwilling to offer even a basis point over the ‘market rate’ to buy green paper. That means, in practice, green bonds are often priced tighter — when demand is high and issue sizes are small.

It’s great to see Rabobank scoring a better cost of funds for being an ESG leader, but what if all the other ESG leaders launch similar programmes? Will the demand for short-term SRI paper remain disproportionate enough for this funding advantage to last?

Perhaps it will, but what the market needs is a real commitment to paying up for SRI assets.

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