World’s first Green Bond to adapt to the European Green Bond Standard
Handelsbanken served as Green Structuring Advisor to the Swedish real estate company Diös on the development of the world’s first financing structure to conform to the proposed European Green Bond Standard. The inaugural SEK 500m green bond was successfully placed on Thursday November 11th 2021, under strong investor interest.
"We aren't just targeting alignment to the proposed standard, we’re targeting alignment to the future in-effect regulation with the addition of new mechanisms in both the offering and the prospectus to enable post-issuance accreditation as a European Green Bond", says Tobias Lindbergh, Head of Sustainable Finance Handelsbanken Debt Capital Markets.
Since its launch more than ten years ago the green bond market has grown quickly. According to the Climate Bonds Initiative, an environmental NGO, some $390bn have been issued globally in 2021 and close to $1.5trn in total. The market has been voluntary and unregulated, largely conforming to practices established through the Green Bond Principles and the Climate Bonds Standard. This is set to change in the European Union, with the focus in Brussels on the creation of a sustainable finance eco-system and the launch in July by the European Commission of a draft regulation for a common European Green Bond Standard.
The proposed standard aims to reduce the risk of green washing by requiring issuers to ensure that the activities financed with European green bonds are aligned with the EU Taxonomy. It also aims to conform and increase the credibility of the market by introducing an accreditation process for external reviewers and making pre- and post-issuance reviews mandatory. Furthermore, it includes disclosure requirements for issuers, introduces a new structure known as a Factsheet and stricter requirements on both ongoing reporting and external reviewers.
“To be labelled as a European Green Bond both the regulation and accreditation mechanism will need to be in effect, but it’s possible to adjust the terms, structure and prospectus to align to the extent possible today and, through a post-issuance accreditation as a European Green Bond, achieve such status in the future”, says Tobias Lindbergh.
A number of bond issuers in Europe have already attempted to align the asset criteria’s in their green bond frameworks with the EU Taxonomy. This offering however, is believed to be the first time that an issuer has used the proposed European Green Bond Standard, which on top of taxonomy-alignment also fundamentally changes the structure and terms of the offer.
"We have been working in this area and learning about the regulations for quite some time now, and it seemed only natural to update our green financial framework to conform with the new requirements. Being first-movers is a feather in our cap, of course, but the financial framework is more about our own efforts to stay at the forefront of developments and to shoulder responsibility for conducting a sustainable business in the long term," says Johanna Olofsson, Head of Sustainability at Diös.
The regulatory shift is much broader than just the EU Taxonomy and European Green Bond Standard. Corporate disclosures are set to change through the Corporate Sustainability Reporting Directive and investors similarly are already impacted by the Sustainable Finance Disclosure Regulation. Investing in European Green Bonds is likely to give certain advantages to investors under the new rules.
“One year from now, if you ask an investor if they prefer a European green bond, a normal green bond or a plain vanilla bond, I think European green bonds will come out on top. Once mandatory disclosure on taxonomy-alignment begins, the market should begin to ramp up more quickly”, Tobias Lindbergh told Bloomberg News.
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