‘Green’ Finance Sprouts
Jonathan Weinberger, Societe Generale’s Head of Debt Capital Markets for the Americas, recently joined a panel of experts on ‘green’ finance at Bloomberg’s New Energy Finance conference to discuss this growing and meaningful area of finance and what it offers both investors and issuers . Following the conference, we took the opportunity to ask Jonathan a few questions about ‘green’ finance for those not so familiar with this important new area of finance.
What characterizes a green bond or green financing?
Green bonds and green loans are debt instruments that combine typical financial characteristics (like payment of principal and interest) with non-financial characteristics that are typically related to the issuer’s commitment to use the proceeds of the financing towards projects/assets which have a positive environmental impact. In recent years, we’ve seen the market expand beyond the environment to include funding for social programs.
Is there growing demand to raise funds through green bonds by US corporates? Is there investor demand?
Green bonds first developed in Europe, and are now truly international. About 8% of global issuance has come from US-domiciled borrowers – and interestingly, about 20% has come from Chinese borrowers. In the US, issuers include Starbucks, Apple, Digital Realty, and Solar City. Investor demand is growing: new funds are being formed, and existing funds are gaining assets.
What advantages do green bonds offer corporates?
For corporate borrowers, issuance of a green bond provides a few things: funding, investor diversification, and a platform to communicate about environmental and social issues as well as the company’s Corporate and Social Responsibility policy/strategy.
What are the primary challenges for corporates in issuing green bonds?
Corporate borrowers typically have questions about what sorts of activities are appropriate to fund with a green bond and also about reporting obligations. When we work with first-time issuers, a large part of our advisory activity is helping the corporate treasury groups find relevant information from other units within their businesses.
Does the US market for green finance differ significantly from other green finance markets in either Europe or Asia?
The US market does look a bit different from the European and Asian markets. The US borrowers who are using green bonds are disproportionately municipal borrowers, including local transportation networks and water authorities. However, US-based, private-sector issuers have been quite innovative: Toyota Motor Credit issued the world’s first green auto Asset-Backed Security (ABS); and Starbuck’s issued the first corporate social bond.
Is Societe Generale active in the green financing space? Do we have an expertise in this area?
Societe Generale is very active in green financing, as both an issuer and an underwriter. Societe Generale has issued two benchmark notes in 2015 and 2016 for a total amount of EUR 1bn under our positive impact finance framework, and also several structured notes. As an underwriter, we’ve been involved in some of the most interesting transactions in the market, including the first ever green Residential Mortgage Backed Security issuance, the first green High Yield issuance, the largest ever green bond, and funding for wind, solar, and transportation projects across developed and emerging markets.
Is our involvement in green finance timely and relevant to our business strategy?
Green finance is integral to our business strategy. Societe Generale is committed to raising EUR 100bn between 2016-2020 to help finance energy transition, at least EUR 15bn of which will fund renewable energy. These commitments align both with public initiatives and also the initiatives of our clients, who are increasingly prioritizing energy transition in their business practices. Within Societe Generale, there are several areas with expertise in these topics – including our Debt Capital Markets teams, our Natural Resources and Infrastructure Finance business, and our Environmental Advisory unit, which analyses client projects and advises on how to bring them in line with acceptable environmental and social standards. Together, we’re able to provide advisory and financing services to clients who are increasingly focused on how environmental and social topics effect their businesses.