This week saw German energy company EnBW and UK utility National Grid find success with similar dual tranche trades where only the shorter tranche was a green bond — the other piece being a conventional bond. It is an approach that offers a viable alternative to the benefits and pitfalls of sustainability-linked issuance.
Investors liked the layout and more borrowers are expected to come using the structure as a result.
The approach solves one of the biggest gripes that issuers have with green bonds: having sufficient assets to fund with green finance. By making only half of the deal a green bond, borrowers need to find fewer green-eligible uses of proceeds than if both tranches were given the tag. But they can still come to the market in one swoop and raise additional debt for general corporate purposes.
This makes it a usable option, too, for green companies that want to raise money for general corporate purposes and want to stick to their environmental, social and governance commitments — which, until now, have been served only by issuing sustainability-linked bonds that require no specific use of proceeds but do require the construction of key performance indicators.
SLB KPIs are a burden. They must be ambitious, but easily measurable; bespoke, but easy to explain to investors. They are rife for greenwashing claims because of varying opinions on what counts as an ambitious enough target.
Green bonds are much simpler. They either fit into ICMAs Green Bond Principles or they don’t.
There is ample room for green bonds, SLBs and conventional bonds to thrive, but as with any healthy, developing market, it is good to see more viable choices on offer for borrowers.