More high grade corporates printed European Green Bonds this week, but the slow take up for the new top tier standard in green bonds suggests it is difficult for most companies to break into. This is not a bad thing.
The new European Green Bond Standard (EuGB) came into being in December last year as a European Commission project.
It is a voluntary standard for green bond issuers to align their use of proceeds with the EU Taxonomy of Sustainable Economic Activities. Essentially, it is a stamp of approval that the EU thinks your bond is green.
This week, Norwegian aluminium and renewable energy company Norsk Hydro and French real estate company Covivio sold €1bn of debt under the structure to a very strong market response.
Norsk Hydro landed inside fair value, which is unusual in a market where a 5bp premium is the norm, while Covivio printed flat to fair value, which is a feat for a company operating in the often-tricky real estate sector.
Leads said the EuGB label might not have turbo charged demand, but it did drive some extra orders into the deals.
And it is often the fringe demand that decides whether a deal can price at or through fair value. These are the orders that can take flight once guidance is set, if it is deemed too tight, as opposed to core orders, which are much more likely to follow a trade all the way through bookbuilding.
So, there are tangible benefits to printing EuGBs for high grade corporates, but still there have only been a handful of names to do so since December.
This is because it is punishingly difficult to get the EuGB stamp. It takes a lot of work from the borrower to make sure their deal hits the strict EU Taxonomy standards, and they need to have the Taxonomy-aligned assets in place to be able to start the process.
Fantastic — in a market still trying to work out how to make sustainability-linked finance more palatable to green investors and accountable to issuers, having an undisputed sign of best-practice green finance is something to cherish.