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CommentLeader

Green SLBs: game changer

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Austrian utility company Verbund this week did something no European issuer has ever done when it sold a single bond that had its use of proceeds tied to green and sustainability-linked metrics. This is an excellent development for the ESG market, and finally covers glaring weak spots in the effectiveness of green bonds.

Verbund took a few days to market its novel deal, with those privy to the discussions claiming that half the time was spent discussing the credit, and the other half explaining how a bond can be simultaneously structured to have specific and key performance indicator-linked use of proceeds.

Investors were convinced, with the trade landing with a zero to negative concession, depending on who you ask, and a book that was four times oversubscribed.

The structure can only be described as a triumph for sustainable finance. Until now, detractors of green bonds pointed out that while the money will fund a green project, it means very little if the company spends the rest of its time, for example, pumping waste into oceans. Oil companies were held up as the most egregious exemplars of this.

Meanwhile, sustainability-linked bonds have detractors who are just as vocal at complaining that being able to spend the proceeds on anything, means the structure is too wishy-washy and easy to greenwash.

By combining the two structures into one product, Verbund has effectively risen above the arguments against both types. It has created an elite class of green issuance that gets as close to being beyond reproach as a green structure can hope to be with existing reporting methods.

For that, the company, and its structuring banks, should be lauded.

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