GREEN BOND PRICINGIN THE PRIMARY MARKET:

Q2
2017

April – June 2017

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3

2

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1
Report highlights

2• Includes USD and EUR green bonds issued
Q2 2017• Pool of issuers continues to expand• Issuers can access a broader investor base3

• 54% of green bonds allocated to dedicatedgreen bond investors• Oversubscription and tight pricing arefeatures of the bond market and extend togreen bonds• EUR Corporate credit performs particularly
well in the secondary market

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0

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2

3

4

5

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With support and funding from Pax World Mutual Funds, Obvion Hypotheken
and Rabobank
Prepared jointly by the Climate Bonds Initiative
and the International Finance Corporation

Additional funding was received from the Ministry of Finance of Japan and theGovernment of the Kingdom of Denmark through the Ministry of Foreign Affairs

Green Bond Pricing in the Primary Market: April – June 2017

1

7

Introduction
This is the second paper in our series examining the behavior of green bonds in the primary markets.
In August 2017, we published a comprehensive assessment of green bonds issued during 2016 and thefirst quarter of 20171. This paper covers qualifying2 green bonds issued in the second quarter of 2017,and includes similar metrics3 to the earlier paper, plus a few enhancements.

Report Highlights• USD denominated green
bonds price on average
15.4bps tighter than IPT.
This is tighter than vanillabonds issued during the same
period. EUR denominatedgreen bonds price on
average -6.3bps tighter
than IPT, average for vanillaequivalents is -9.4bps.

• EUR green bonds achieveslightly bigger order books(2.3 times covered) than acomparable vanilla sample(2.2 times covered).
USD green bonds achieve
the same sized order books(2.8 times cover) as vanillaequivalents.

• 54% of green bonds weresold to green investors.
This was 62% for bonds
originating from Developed
Markets, and 25% for bonds
originating from Emerging
Markets4.
See more on Page 5

See more on Page 4• All 5 EUR corporate green
bonds perform well on all
Metrics.
Spreads tighten more thanbaskets of comparable
vanilla bonds after both 7
and 28 days, and spreads
tighten more than indicesafter both 7 and 28 days.
See more on Page 7

See more on Page 3

101 labelled green bonds were issued during the second quarter of 2017, with a combined face value of
USD30bn. This paper covers just under half of the total amount issued (USD14bn) during the quarter,
made up of 19 USD and EUR bonds. The sample includes green bond issuers from both Developed andEmerging Market countries. The 19 bonds were chosen based on parameters designed to capture themost liquid portion of the market. See the methodology discussion on page 13.

What’s new?
In our last report, we included an analysisof the first green Apple bond, which was
issued on the same day as 5 comparable
vanilla Apple bonds, enabling an opportunity
to track the relative performance. However,issuers rarely bring green and vanilla bondson the same day. For this publication, we havetherefore introduced a peer group comparison
which we believe to be the best alternative.
Green bonds are compared to baskets ofvanilla bonds issued during the same quarterand with the same characteristics in termsof currency, rating, and sector. The vanillabonds are not necessarily issued on thesame date as the green bonds, and are notmatched by tenor or issuer.
While we understand the importance ofmatching by tenor, this would have further
restricted an already limited basket. Some bondsin the basket have longer tenors than the greenbond, and some have shorter tenors (details on
pages 14 & 15). We have used equallyweighted mean numbers for baskets.
Acknowledging these limitations, we see
value in using this model to demonstrate what

other investment opportunities were available
outside of the green bond space during thesame period. The summary statistics of thebaskets are presented on pages 14 and 15.
New green bond issuers expand
investor choice
The green bond market continues to develop
rapidly and we are seeing lots of ‘firsts’5,
extending the breadth of the market. An
increase in the type and number of issuers
offers investors with a green mandate an
opportunity to diversify their risk.
Any ‘first’ will therefore receive a lot of
investor attention, and performance will beclosely scrutinized. For example, at issuer
level, Intesa Sanpaolo, Regie Autonome desTransports Parisiens (RATPFP), and China
Three Gorges all brought EUR green bonds
for the first time in Q2.
In Q2 2017 we saw:
• First green bond from the Gulf – First Abu
Dhabi Bank PJSC
• First Chilean green bond – Inversiones
CMPC SA

Green Bond Pricing in the Primary Market: April – June 2017

• First Insurance green bond – QBE
Insurance Group Ltd• First Spanish SOE – Alta Velocidad• First Indian SOE – Rural Electrification
There were also several repeat issuers
including Export Development Canada, Berlin
Hyp (second green Pfandbrief), Apple, andEIB. Dutch electricity provider TenneT issued
2 green bonds in Q2 2017, and now has 7
green bonds outstanding, enough to build its
own green bond curve, which sits inside its
vanilla curve. The fact that issuers return to
the green bond market may indicate that thebenefits outweigh the issuance costs.
Limitations of the data set: The data
set remains too limited to draw definite
conclusions and there is no potential topartition the data set on a more granularlevel. Our observations are based only on
bonds included in the scope of this paper.
1. https://www.climatebonds.net/files/files/Greenbond_Pricing_Jan_16-March_17.pdf
2. Methodology described on page 13
3. Use of the terms metrics and methodology in this report, refer tothe metrics and methodology defined in this document.
4. Developed and Emerging Markets as defined by MSCI Market
Classification https://www.msci.com/market-classification
5. First time a green bond has been issued in a sector, or from a region
or country.

2

1. Initial Price Talk: Green bonds price tighter than IPT - in line with the market• EUR: final pricing average-6.3bps tighter than IPT, market
average is -9.4bps• USD: final pricing average-15.4bps tighter than IPT, market
average is -12.5bps
Green bonds in our sample priced tighter
than Initial Price Talk (IPT). Bond spreads
tightening relative to IPT is a normal featureof the bookbuilding process. The difference
between IPT and landing price can be

influenced by a number of factors
specific to each bond. These factors
may include the tenor, rating, and sectorof the bond as well as more micro
considerations such as whether the issuer
has bonds already outstanding, and whatelse is being issued that week.
We have compared each green bond toa corresponding vanilla basket. The pricemovements seen for EUR green bonds arelower than the market average, while USD
green bonds showed bigger price movement
than the market average.

Inversiones CMPC (-37.5bps), Rural
Electrification (-32.5bps), and Kaiser Foundation(-22.5 bps) exhibited the biggest differences
between IPT and landing price and tightenedmore than their corresponding baskets.
Methodology notes: Market averages are
based on baskets of bonds of the same
currency, sharing similar rating and sector
characteristics as the green bonds. Vanillabonds were issued at some point in Q2
but not necessarily on the same day as
the corresponding green bond. Summary
statistics of baskets are on pages 14 and 15.

EUR green bonds price tighter than IPT
Final pricing is 6.3bps tighter than IPT
BBB

Quasi

CoveredVanilla basket

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EUR vanilla bonds final pricing
averaged 9.4bps tighter than IPT-20

USD difference between IPT and final price is larger for green bonds

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USD vanilla bonds final pricing
averaged 12.2bps tighter than IPT-20

USD final pricing averaged 15.4bps
tighter than IPT

Bps

-30

-40

Green Bond Pricing in the Primary Market: April – June 20173

2. Order books for green bonds are oversubscribed - in line with the market• Average oversubscription
for EUR bonds = 2.3x
• Average oversubscription
for USD bonds = 2.8x
Excess demand is a normal feature of the
new issue market. Fixed income investors
may have money to invest because of
coupon income and maturing bonds. As with
the IPT metric, oversubscription will depend
on a combination of factors.

times), RATP (3.2 times), and 3 Gorges (3.1
times) had the highest book cover. Orderbook cover for EUR bonds in our green bondsample is summarized below:

These were green bond firsts, in terms ofboth issuer and sector. Order book coverfor USD bonds in our sample is summarised
below:• 1-2 times – 5 bonds• 2-3 times – 2 bonds• 3-4 times – 3 bonds• 1-2 times – 3 bonds• 2-3 times – 1 bonds• 3-4 times – 4 bonds• >=4 times – 1 bonds

USD green bonds were on average 2.8
times oversubscribed, identical to themarket average. Pulp and paper company
Inversiones CMPC brought the first Chilean
green bond to market and the book was
4.8 times covered which was the highest
for any green bond in our sample. Rural
Electrification was 3.9 times oversubscribed,
and Kaiser Hospitals managed 3.3 times.

EUR green bonds covered their order booksby an average of 2.3 times against themarket average of 2.2 times. Three first-time
green bond issuers, Intesa Sanpaolo (3.6

Methodology notes: Market averages are
based on baskets of bonds of the same
currency, sharing similar rating and sector
characteristics as the green bonds. Vanillabonds were issued at some point in Q2
but not necessarily on the same day as
the corresponding green bond. Summary
statistics of baskets are on pages 14 and 15.

EUR green bonds are slightly more oversubscribed than the market average
AA

A

BBB

Quasi

CoveredVanilla sample

4

EUR Green bond averageoversubscription 2.3x

2
EUR Vanilla bond averageoversubscription 2.2x

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USD green bonds are as oversubscribed as comparable baskets
4

USA Green bond and Vanilla bondaverage oversubscription 2.8x

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Green Bond Pricing in the Primary Market: April – June 20174

3. Allocation: 54% of bonds were allocated to green investors
54% of bonds in our sample
were allocated to thoselabeling themselves as socially
responsible or green investors.

buying DM paper, which may explain thelower percentages for the three bonds
in our sample domiciled in EM: BNDES(Brazil), Rural Electrification (India), andInversiones CMPC (Chile). Despite thelack of overlap between EM and green
bonds, the EM bonds in our sample wereoversubscribed, indicating demand from allparts of the market.

Treasurers repeatedly state that issuinggreen bonds gives them access to a broader
investor base. Bookrunners say that the‘green angle’ can result in tighter pricing.

is increasing. We suspect that the likely
explanation for this is the robust increase in
the number of green bond funds over the last
couple of years. We will continue to monitor
this metric for future pricing papers.
Methodology notes: This data is difficult
to capture precisely because it relies on full
disclosure from buyers which we cannot
verify. Investment managers may have green
allocations within a portfolio, but not necessarily
only use the green allocation to buy the bond.

We started tracking this data in Q2 2017
so we don’t have any comparable data yet.
However, primary market professionals tell usthat between 15-30% of an EM green bondgoing to green investors is normal. We expect
this percentage to increase for EM green
bonds. We have been advised that DM green
bonds were attracting those levels of interest
from green investors a couple of years ago.

We contacted 19 issuing entities directly
to ask what percentage of their green bond
was allocated to those labeling themselves
as socially responsible or green investors(green investors). Twelve issuers responded
sharing the information, the results of which
are shown below. The allocations to green
investors ranged from 20% (BNDES) to 82%(TenneT 2025). The total debt represented
in the below chart is USD7.6bn, USD3.9bn ofwhich was sold to green investors.

Syndicate managers now generally expect
around 40% of DM green bonds to beallocated to green investors. All DM bonds inour sample achieve higher percentages thanthis, the lowest being 45%. The percentage
of deals being allocated to buyers who
identify themselves as green investors

The average for Developed Market (DM)green bonds is 62%, and 25% for Emerging
Market (EM). We are aware of 24 dedicatedgreen bond funds. Most are limited toAlternatively, buyers may state they areusing their green allocations in the belief
that they will receive better allocations, andperhaps park the bonds elsewhere once
allocated which again, we cannot verify.
Separately, we note that some large investors
including Amundi, AXA AM, Blackrock,
Calvert, Mirova, Nikko AM and PIMCO havededicated green bond portfolios, while otherssuch as AP4 actively buy green bonds andintegrate them into mainstream portfolios.
Green investor information is provided byeach bond issuer, and we have taken thisdata at face value.

54% of green bonds were allocated to green investors
Declared green investor

Average 54% were allocated to green investors

Not declared green investor
Developed

Emerging

100

75

50

Green Bond Pricing in the Primary Market: April – June 2017

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Green mandate % of
green bonds in our sample

Green
mandate notspecified
46%

Green
mandatespecified
54%

Developed Markets:
62% bought by investors witha green mandateGreenmandate notspecified
38%

Green
mandatespecified
62%

Green bond pioneer World Bank (IBRD) issues two green bonds
to meet the green investment needs of a single investor
Two bonds were issued on
5th April 2017:• IBRD 2% 12th April 2025
USD300m• IBRD 3 month USD Libor+ 1bps 12th April 2020
USD50mIn addition to the conventional bondissues captured in the scope of this paper,
we note a bond of respectable size wasissued by IBRD in April 2017. The IBRD
issued two customised green bonds with a
combined value of USD350m. These bonds
were private placements, designed with thesupervision of SEB to meet the investment
needs of Swedish insurance group, Folksam.
That means that 100% of this deal was
sold to an investor with a green mandate.
These bonds took IBRD’s total green bondprogramme above USD10bn. Simultaneously,
Folksam’s total exposure to green bonds
climbed to SEK15bn (USD1.85bn), or 4%of the total portfolio. Having surpassed
their original green investment goal of
SEK12bn (USD1.5bn), Folksam set a newgoal of owning SEK25bn (USD3.1bn) ofgreen bonds by the end of 2018.
Jens Henriksson, Folksam Group President
and CEO said: “Our engagement in green
bonds benefit our customers directly, as
their money contributes to environment- andclimate-friendly projects, while they generatesafe returns. Our investments in green
bonds show how we can add real value
and live according to Folksam’s vision.”6
Arunma Oteh, World Bank Vice President
and Treasurer, said: “We are delighted that
this transaction has enabled us to reach animportant milestone—USD10bn in bonds
issued through our green bond program.
We are excited about the future, as we
continue to establish close partnerships
with new investors and connect further thecapital markets with solutions to address
climate change, health, infrastructure andother development goals.”7

Green STORM 2017 3 month Euribor + 17 bps May 2022.
Our report sponsor, Obvion Hypotheken,
issued its second green residential
mortgage-backed security in May 2017,
raising EUR550m.
The bond was announced on May 15th,and book building began on the 17th with
IPT of 3-month Euribor (3mE) +20 bps
area. The next day price guidance was set
at 3mE +18 bps area, with indications ofinterest having reached EUR1bn. In themorning of Friday May 19th orders topped

EUR1.4bn and books were closed. Finalterms were set later that day, establishinga size of EUR550m and a record low post
financial crisis spread of 3mE +17 bps. The
strong oversubscription and high quality
green order book ensured full allocation togreen investors only.
Green STORM 2017 performed well in theimmediate secondary market and on May
26th, the spread had tightened to 3mE+13 bps.

Green Bond Pricing in the Primary Market: April – June 2017

Emerging Markets: 25% bought
by investors with a green
mandateGreenmandate notspecified
75%

Green
mandatespecified25%

How important are green
mandates within the green
bond market?
Green mandates have been
essential in driving demand for green
bonds and growing a market. Further,because of the limited supply of
product, green mandated investors may,in some instances, help to drive slightly
tighter pricing.
Green bonds are the same as vanillabonds in every way except that the useof proceeds is defined as green - they
are no different from vanilla bonds withthe same seniority ranking from thesame issuer. For this reason, they are as
attractive to regular investors as they
are to green investors.
This broad appeal is a crucial feature
which has been instrumental in growing
the market. Fixed income investors may
own green bonds without even knowing
it, which adds to the breadth of demand
for the product.
From a wider climate change
perspective, this is critical. To achieve
the estimated USD1tn per year required
to meet climate targets, green
bonds need to be a mainstream
investment vehicle which all types ofinvestors can access.

6. https://media.folksam.se/en/2017/09/13/folksam-group-in-newacquisition-of-green-bonds-from-the-world-bank-group/
7. http://treasury.worldbank.org/cmd/htm/World-Bank-GreenBonds-Reach-USD-10-Billion-in-Funding-Raised-for-Climate-Finance.
html

6

4. Performance against comparison basket: Green bond spreads tighten in the immediate secondary market
Bond prices generally increase on the ‘break’
which is when a bond starts trading inthe secondary market. If bonds are issued
early in the month this can give investment
managers an opportunity to chalk up some‘off benchmark’ performance before bonds
enter indices at month end.

tenors of baskets are published on pages 14
and 15. We want to illustrate how a manager
could have invested their money over thesame period given bonds that were available
to buy. The 7 and 28 day periods are notnecessarily overlapping, and are calculated
for each bond individually.

Our research has shown that in terms oftightening on the break, green bonds behave
no differently from vanilla bonds. 75% of oursample had tighter spreads both 7 and 28
days after announcement.

40% of green bonds in our sample hadlarger price improvements than their baskets
7 days after announcement, and 35% had
larger price improvements after 28 days.
We note that the 5 European corporate
bonds issued in Q2: Nordea, TenneT (2025
and 2029), Intesa Sanpaolo, and 3 Gorges,
all tightened materially 7 and 28 days post
their announcement dates. When comparedto the baskets, all except Nordea tightenedmore 7 days after announcement, andafter 28 days, only TenneT 2029 had nottightened by more than its basket.

We have compared these spread changes
to those of our vanilla baskets. Our vanillabaskets comprise bonds that share the samecharacteristics as the green bonds in our
sample in terms of currency, sector, andcredit rating, and were issued during thesame 3-month observation period. We have
not restricted on the basis of tenor providing
bonds were issued with a minimum termof three years. Adding this limitation would
have resulted in too few bonds. Average

Methodology notes: Baskets include bondsthat were issued between 1st April – 30th
June 2017 and fit the parameters that wehave used for green bonds on page 13,
except that the use of proceeds is notgreen. We are aware that bonds can behave
differently according to which part of themonth they are issued in, and there arealso geo-political events which occur overthe course of a three-month period which
can influence bond pricing. We emphasisethat it is not always possible to find bonds
sharing precise characteristics issued on
the same day. These baskets are a proxyfor how else the money could have been
invested within the 3-month observation
period. The number of bonds in each basket
depends on what was issued over thequarter and ranges in number from 3 to 18
bonds. Summary statistics of baskets are on
pages 14 and 15.
7 day spread data was available for 16 bonds
in our sample. 28 day spread data wasavailable for 18 bonds in our sample.
7 calendar days includes 5 data
observations, 28 calendar days includes 20.

EUR green bonds - Spread changes compared with baskets of vanilla bonds
Spread change
1 weekSpread change
1 week basket

3 Gorges-14.21TenneT 2025

Greater or lessthan basket?

Spread change
1 monthSpread change
1 month basket-1.26-19.66

-7.83

-2.04

-1.26

-7.89

-7.83

TenneT 2029

-2.08

-1.26

-5.36

-7.83

Nordea Bank

-0.67

-3.29

-10.56-4.85

Intesa SanPaolo-11.29-6.01-31.08-11.12

1.8

0.30

Berlin Hyp
KFW

1.48

-0.15

-0.94

-2.24

Kommuninvest

2.05

-0.15

2.06

-2.24

Regie Auto. Des Trans

-1.55

-2.19

-1.19

-3.87

Greater or lessthan basket?

Source: Thomson Reuters

Ticker

USD green bonds - Spread changes compared with baskets of vanilla bonds
Spread change
1 weekSpread change
1 week basket

First Abu Dhabi

0.22

EDC

-0.25

Spread change
1 monthSpread change
1 month basket

-0.79

6.94

-6.80

-0.09

-0.55

-3.04

-0.47

-3.04

Kommunekredit

Greater or lessthan basket?

EIB

-9.30

-0.09

-6.90

-3.04

QBE Insurance

-0.22

-5.89

1.82

-11.02Kaiser Foundation Hosp. -3.00

-3.04

-0.10

-4.87

Apple

-0.90

-6.08

-9.00

-6.43

Inversiones CMPC

4.96

-4.82

9.47

-9.90

Rural Elec.

-0.51

-4.57

-0.46

-14.71

Green Bond Pricing in the Primary Market: April – June 2017

Greater or lessthan basket?

Source: Thomson Reuters

Ticker7

5. Performance against index: green bonds outperform indices in the immediate secondary market• 7 days after announcement
66% tightened more thancorresponding index

by a larger percentage than their indices,
including all 5 of the EUR corporate bonds.

• 28 days after announcement
53% tightened more thancorresponding index
Comparing bonds to corresponding indicestells us how they have performed versus ‘themarket,’ or seasoned equivalents. Overall,
66% of green bonds in our sample hadtightened more than their corresponding
index 7 days after their announcement date.
By currency, all the EUR denominated bonds
except 1 tightened by a bigger percentage
than their corresponding indices. After
28 days, 6 out of 8 bonds had tightened

Results among the USD bonds were mixed.
7 days post announcement date, 4 out of 8
bonds had tightened by a bigger percentage
than their corresponding index, and after 28
days, 3 out of 9 bonds exhibited a greater
magnitude of tightening than their index.
Kommins, EIB and Apple had tightened by agreater magnitude than their corresponding
indices after both 7 and 28 days.

A

BBB

Quasi

We used standard iBoxx indices8 partitioned
by currency, asset class, credit rating, andtenor, all of which influence the performanceof a bond. As a result, green bonds arecompared with an index comprising bonds
sharing similar characteristics. For example,
EUR TenneT 2025 is matched with the iBoxx
EUR Corporates A 7-10 Index.

Overall then, the EUR bonds performed
better than the indices, while USD bonds
did not, with EUR corporate credit doing
particularly well.

7 day spread data was available for 15 bonds
in our sample. 28 day spread data wasavailable for 17 bonds in our sample.

Methodology notes: To isolate theperformance of a green bond, we would need

EUR: 6 out of 7 of bonds tightened more than theirindex after 7 daysAA

to compare it to an index from which green
bonds were excluded. Such indices are notcurrently available in the public domain. We
have thus used standard indices.

7 calendar days includes 5 data observations,
28 calendar days includes 20.

EUR: 6 out of 8 of bonds tightened more than theirindex after 28 days

Covered

•
•

•
•

Bond
Index

Bond
Index

30

Regie Auto. Des Trans.

Berlin Hyp

Nordea Bank

3 Gorges
TenneT 2029

Nordea Bank

TenneT 2025

Source: Bloomberg, Thomson Reuters% change-40

Regie Auto. Des Trans.

-30

TenneT 2029

-20

Intesa Sanpaolo-10TenneT 2025

KFW

0Intesa Sanpaolo

10

KFW

3 Gorges

20

-50
-60

Q2 2017

EUR 7 days: 6 out of 7 of bonds tightened more that theircorresponding index

Q2 2017

EUR 28 days: 6 out of 8 bonds tightened more that theircorresponding index
8. http://www.markit.com/product/iBoxx

Green Bond Pricing in the Primary Market: April – June 20178

USD: 4 out of 8 of bonds tightened more than theirindex after 7 days
BBB

Quasi

Bond
Index

EDC

EIB

Kommuninvest

Apple

First Abu Dhabi

Source: Bloomberg, Thomson Reuters-30

QBE Insurance

EDC

QBE Insurance-20

Rural Elec.

-10

Inversiones CMPC

0

Apple

10

First Abu Dhabi

20

Index

EIB

Kaiser Foundation Hosp.

30

•
•

Bond

Kaiser Foundation Hosp.

••

Rural Elec.

A

Inversiones CMPCAAUSD: 3 out of 9 of bonds tightened more than theirindex after 28 days

% change

-40
-50
-60

Q2 2017

Q2 2017

USD 7 days: 4 out of 8 bonds tightened more that theircorresponding index

USD 28 days: 3 out of 9 of bonds tightened more that theircorresponding index

BNDES cracks the Brazilian green bond market with biggest offering to date
BNDES is the giant Brazilian developmentbank. Its stated mission is to foster
sustainable development in the Brazilian
economy, generating employment while
reducing social and regional inequalities.
In early May 2017, BNDES came to the
USD market for the first time since 2014
with plans to raise USD1bn to fund solar
and wind projects. The BB-rated bond had
a 7-year tenor, set to mature in 2024.

Initial price thoughts suggested a couponof around 5%, and interest was strong
with the order book closing at USD5bn.
The bond landed with a coupon of 4.8%
equivalent to a spread of UST+ 269.3
basis points.
BNDES told us that 20% of the deal was
allocated to green accounts, mentioning
on their website that there was interest
from 370 investors9.

This was the biggest green bond to comeout of Brazil, and the first international
green bond from a Brazilian SME.

Green Bond Pricing in the Primary Market: April – June 2017

One of the leads said there were“…European accounts in the bookwho would not have participatedin a non-green EM deal. And
some asset managers placedlarger than usual orders because
it was a green deal”.10

9. http://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/Institucional/Press/Noticias/2017/20170509_green_bonds.html
10. http://www.globalcapital.com/article/b12vk38vlh8cy0/
bndes-lays-green-grass-for-brazilian-issuers

96. The Greenium – some green bonds in our sample do not exhibit a new issue premium• 2 bonds priced inside theirown yield curve so do exhibit
a greenium

Occasionally, a bond might be issued at ahigher price, offering buyers a lower yield, thus
sitting inside its existing curve. This is known asa new issue discount, or when present in green
bonds, a greenium. This is counterintuitive
because green bonds rank ‘pari passu’ (onequal footing) with bonds of the same rank
and issuer. There is no credit enhancement
to explain pricing differences and issuers ofgreen bonds incur additional costs such as
certification and third-party review.

• 2 bonds priced on their own
yield curve so there is anabsence of a new issuepremium• 6 bonds priced outside theirown yield curve indicating clear
new issue premium
A new issue premium is the extra yield thata buyer gets for a new bond when compared
to a seasoned vanilla bond from the same
issuer. The new bond sits outside a curve
constructed from existing debt. An issuer
bears this cost to attract new investment,
and this is standard in the bond market.

For this exercise, our sample is a sub-setof that used for this paper, and includes 10
green bonds issued in Q2 2017. A lack ofcomparable bonds limits the sample.

Any of these bonds may have been funded
more cheaply than they would have had thebonds not been green, and indeed, they may
have been funded more cheaply than any
other bond from the same issuer. We are
only looking at whether green bonds priced
through their existing curves and came withlower yields and higher prices relative toexisting debt from the same issuer trading inthe secondary market.

The results of this exercise show that 2
bonds did price inside their curves, thus
exhibiting a greenium: Berlin Hyp, andNordea Bank. Two bonds priced on theircurves, which is the absence of a traditional

While we do not see a consistent pattern
emerging, some green bonds are pricing
inside their own curves and others with nodiscernible new issue premium. Overall, thisis no different from the vanilla bond market

Vanilla bonds

New issue green bonds

Seasoned green bondApple (USD) exhibits a new issue premium

Yield as of 13/06/2017

2.5
2.0
1.5
1.0

2.5

2.5

3.5

2.25

3.0

2.0

2.375% 2027
2.125% 2026
2.5% 2024

3% 20272.0

2.5

2.85% 2023
2.0

1.75

1.5

1.5
1.0

0
0

55

10
10

15
15

20
20

1.5
Source: Bloomberg

3.0

4.0

Yield as of 17/05/2017

3.5

EIB (USD) exhibits a new issue premium

Source: Bloomberg

4.0

new issue premium: Intesa Sanpaolo IMI
and EIB. Finally, 6 bonds priced outside theircurves, exhibiting new issue premium: Apple,
KfW, Kommuninvest, RATPFP, TenneT 2025
and TenneT 2029.

1.25

1.0

1.0

0
0

22

4
4

66

88

10
10

Berlin Hyp (EUR) exhibits a greenium

Intesa Sanpaolo (EUR) exhibits a slight greenium

0.5

2.0

Yield as of 16/05/2017

0.1
0.0

-0.1
-0.2
-0.3
-0.4

1.5

0.125% 2023
0.125% 2022

0

-2

-4
0

0

1.0

1

2

2

3

4

4

5

8

6

7

Green Bond Pricing in the Primary Market: April – June 2017

8

8

0.5

0.0

1.0

0.875% 2022

0.5

Source: Bloomberg

0.2

1.5

2

Yield as of 16/06/2017

0.3

4

Source: Bloomberg

0.4

2.0

0

33

44

55

66

77

88
10

where bonds will occasionally price on or
through existing curves. We will continue tomonitor this Metric.

Comparable bonds are selected based on thefollowing parameters:•••

Methodology notes: We have used yield
on issue date, which is where the green
bond offered on issue date. For comparable
bonds, we have used yield to convention
mid. For all bonds, we have used modified
duration to mid, and all data is taken fromthe announcement date of the green bond.
First, we plot seasoned vanilla bonds (bluedots) and fit a 2nd order polynomial curve.
Next, we overlay any seasoned green bonds(orange), finally we add our subject bond(green). Yield on issue date is not available
for all bonds, and for those that did have data
we have looked at bonds with a minimum of
6 comparable bonds.

Currency – same as green bondAmount outstanding > = USD200m
Residual maturity > = 3 years

•
•
•
•

Announcement date > = 01/01/2010
Seniority rank – same as green bondBloomberg composite rating – same asgreen bond
Zero coupons and floaters / index
linked bonds are excluded

Tennet 2025 and 2029 (EUR) exhibit new issuepremiums
2.0

2.0

5

1.0

Yield as of 12/06/2017

0.75% 2025

0

00

5

10

15

KfW (EUR) exhibits a new issue premium

Kommuninvest (EUR) exhibits a new issuepremium

1.5

1.5
1.2

1.2

0.9
0.6

0.6

0.0

0

0.25% 2025

0.05% 2024

-0.3

0.3

0.125% 2020

-0.6

-0.6 0

55

0

10
10

15
15

20
20

NORDEA (EUR) exhibited a slight greenium

0.0

0
-0.3

0

0.4

0.8
0.3% 2022

5
5

10
10

0.2

0.4

Source: Bloomberg

0

1
1

15
15

20
20

2

3

3

4

5

5

6

0.875% 2027

0.8

0.6

Yield as of 22/06/2017

Yield as of 16/06/2017

0.3

1.0

0.1

-0.1

0.75% 2027
0.6

1.2

0.3

0.0

0.9

RATPFP (EUR) exhibits a issue premium

0.5

0.2

1.2

-0.3 0

0.6

0.4

1.5

7

7

Green Bond Pricing in the Primary Market: April – June 2017

8

0.4

0.2
0.0

0

-0.2 3
3

6
6

9
9

12
12

Source: Bloomberg

0.3

Source: Bloomberg

Yield as of 09/05/2017

0.6

0.9
Yield as of 22/07/2017

1.2

20

Source: Bloomberg

0.0

Source: Bloomberg

0.5

0.5

Seasoned green bond20

1.375% 2029

1.0

Vanilla bonds

15

1.5

1.5

New issue green bonds

10

15
15

11

7. Treasurers welcome the benefits of a broader investor base
Green bonds attract a broader range ofinvestors than vanilla bonds. Treasurers are
overwhelmingly happy about how green
bonds in our sample placed. The appeal ofgreen bonds tends to be broader than forvanilla bonds from the same issuer because
of interest from responsible investors.
Investors with an explicit green mandate
could offer stability in times of market
volatility which treasurers ultimately like.
We have included a representative selectionof quotes from issuer websites and deal
reviews, pertaining to bonds included in thispublication. The tone is uniformly positive.

Berlin Hyp AG
0.125% October 2023,
EUR500m
Pfandbrief announced 16th
May 2017
Bodo Winkler, Head ofInvestor Relations at Berlin
Hyp AG said:…we managed to attract newinvestors into the deal thatwould not have bought had it
not been for the fact that theassets being financed are green.
We are very pleased with theoutcome which proves this is agood path for BHH to follow.11

11. http://www.globalcapital.com/article/b13bdrx5ntlytf/berlin-hypfinds-new-names-for-second-green-pfandbrief
12. https://www.nbad.com/en-ae/about-nbad/overview/newsroom/2017/30-03-2017.html
13. https://www.nordea.com/Images/33-197335/Deal%20Review%20-%20Nordea%20Green%20Bond%20EUR500m%20
5-year.pdf
14. https://www.kfw.de/Bilder/Investor-Relations/KfW-Anleihen/
Green-Bonds/EUR-Green-Bond-2017-2025-2.pdf
15. http://kommuninvest.se/wp-content/uploads/2017/05/Presspoints-170517.pdf
16. Deal Review – RATP EUR500m 10y Inaugural Green Bond – June
2017, HSBC & RATPFirst Abu Dhabi Bank
3% March 2022, USD587m
announced 27th March 2017

Kommuninvest
1.875% 2021, USD500m
announced 16th May 2017

Andy Cairns, NBAD’s Global
Head of Debt Origination &Distribution, commented:

Issuer’s transaction comment:

We are honoured to be Joint
Green Structuring Advisor andJoint Bookrunner on this, thefirst ever Green Bond from theMiddle East. It illustrates thatsocially responsible investors
are an increasingly relevant
liquidity source and I am
optimistic that this transaction
will establish a blueprint forother Middle Eastern issuers
to follow suit and issue Green
Bonds and Green Sukuks.12

With this third green bond,following shortly after the
publication of our first green
bonds impact report, we feel wehave firmly established our green
bonds framework in the market.
We are again pleased withthe strong demand for green
bonds from Kommuninvest,
and particularly happy to see
such a diversified and highquality order book, with several
renowned dark green investors
participating Anders Gånge,Head of Funding & Treasury.15

KfW
0.25% June 2025, EUR2bn announced 9th May 2017
Petra Wehlert (Head of Capital Markets) comments:
We see a growing interest from investors for liquidity in the green
bond segment. We were able to issue KfW’s largest green bond, fulfil
investors’ needs for liquidity and deliver an interesting product forgreen bond investors. The bond was placed without any new issuepremium which reflects the strong demand for green products.14

Nordea
0.3% June 2022, EUR500m
announced 16th June 2017

RATP
0.875% May 2027, EUR500m
announced 22nd June 2017

The deal summary states:

Deal summary:The book included over 100
accounts, of which 72% dedicatedgreen investors highlighting
the strong diversification to the
traditional senior unsecured
issue investor base.13

With this Debut Green Bond,
RATP encountered the largest
and most geographicallydiversified orderbook they ever
had on a transaction.16

Green Bond Pricing in the Primary Market: April – June 201712

Conclusion
The green bond market continues toexpand, offering investors a broader choiceof instruments, but the number of large
corporate green bonds remains limited.
More than half of the green bonds in our
sample were allocated to dedicated green
investors, who offer a unique form of
support to the development of the market.
Green bonds afford issuers the opportunity
to broaden their investor base, while
consolidating their commitment to investingin climate solutions. All treasurers welcome
this benefit.
Green bonds are oversubscribed, and pricebetter than expectations, which, as we wrote
in our last publication, is to be expected
for all types of bonds in current market
conditions. Some green bonds priced inside
or on their curves, but most of the bonds
in our albeit limited sample did exhibit thetraditional issue premium. This again does
not differ from the vanilla bond market.
Performance in the immediate secondary
market is mixed, but based on the metrics wehave chosen, we can see that EUR Corporate
green bonds issued during Q2 2017 delivered
superior spread tightening relative to both
vanilla bonds issued during the same period,and corresponding indices. USD green bonds
did not perform comparably.
Green bonds are sometimes sold at similarlevels to vanilla bonds. Sometimes they
perform better, and sometimes they don’t.
There are signs of benefits to both issuers
and buyers of green bonds relative tovanilla bonds. However, the market is stilldeveloping and more data is needed to draw
more consistent conclusions.

This publication is part of an ongoing series.
The next edition will monitor qualifying bonds
issued in Q3 2017, July to September. As wellas the metrics we have included here, we
may examine other ways of comparing green
bonds to a vanilla sample.

historical spread data is taken from EIKON
Thomson Reuters.
Comparable baskets
Baskets for comparison comprise bonds meetingthe above criteria with a use of proceeds which
is not stated as green. To be included, adequate
data must be available. Baskets are equallyweighted and are organized according to:

Methodology
This paper includes labelled green bonds
issued during the second quarter of 2017.
We have included all labelled17 green bonds
meeting the following specifications:• Currency• Bloomberg Industry Classification Scheme• Announcement date between 30/03/2017
and 30/06/2017• Except for First Abu Dhabi Bank, issued

Level 1

• Bloomberg composite rating
Composition of sample

27th March 2017, but not picked up in ourprior publication.

EUR• Denominated in either USD or EUR• Size >= USD300m• Investment grade rated• Minimum term to maturity of three years• Consistent with Climate Bonds Taxonomy• Amortising bonds are excluded

Quasi Covered

AA

A BBB

1

1

1 to 33 to 55 to 71

7 to 10

3

1

1
1

10+

We have set these parameters to capture themost liquid portion of the market for whichdata is sufficiently robust.
All historical data is based on asset swap
spreads for EUR denominated bonds, except
for Regie Auto Des Trans. (RATPFP) whichis spread off a Euro government curve. For
USD denominated bonds, we have used
a US treasury curve, except for First Abu
Dhabi, EIB, EDC, and Kommuninvest which
are expressed as asset swap spreads. All

1

USD

Quasi

1 to 31

3 to 51

5 to 77 to 10

AA

A

1

1

1

1

BBB

1

2

10+
If you would like to discuss this paper in moredetail please contact caroline@climatebonds.net.

Our methodology captures USD46bn of green bonds issued in Q2
20

Not-included54%

4

USD$5.14

TWD $0.07
SGC $0.07
SEK $0.96

AmountIncluded46%

USD$5.91$ Billions

Green Bond Pricing in the Primary Market: April – June 2017

6

8

10

EUR $2.9

INR $0.15
MXN $0.11
NOK $0.09

12

14

16

CNY $6.54

COP $0.15

BRL $0.05
AUD $0.19

EUR $8.06

17. Labelled green bonds are bonds that earmark proceeds for climate orenvironmental projects and have been labelled as ‘green’ by the issuer.

13

USD: Summary statistics of baskets used for comparison.
Bonds issued in Q2 2017 sharing similar characteristic to green bonds
Number ofbonds

Average Coupon(par weighted)

MaturityFirst Abu Dhabi Bank 3% 30/03/2022

1

3.00%

5

AA Financials

6

2.32%

3.8

QBE Insurance Group Ltd 3% 21/10/2022

1

3.00%

5

A Financials

10

2.76%

5.375

Kaiser Foundation Hospitals 3.15% 01/05/2027

1

3.15%

10

A Healthcare

7

2.79%

9.42

Kommuninvest 1.875% 01/06/2021

1

1.88%

4

EIB 2.375% 24/05/2027

1

2.38%

10

Export Development Canada 1.625% 01/06/2020

11.625%

3

AAA Quasi Governments

9

1.74%

3.4

Apple 3% 20/06/2027

1

3.00%

10

AA Technology (comparable bonds all Apple, issued 11/05/2017)

4

2.69%

6.25

Rural Electrification Corp Ltd. 3.875% 07/07/2027

1

3.88%

10

BBB Financials

5

3.70%

7

Inversiones CMPC 4.375% 04/04/2027

1

4.38%

10

BBB Materials

8

3.42%

15.125

Green Bond Pricing in the Primary Market: April – June 201714

EUR: Summary statistics of baskets used for comparison.
Bonds issued in Q2 2017 sharing similar characteristic to green bonds
Number ofbonds

Average Coupon(par weighted)

Maturity

Intesa Sanpaolo 0.875% 27/06/2022

10.875%

5

BBB Financials

14

1.4%

8.3

Nordea Bank AB 0.3% 30/06/2022

1

0.3%

5

AA Financials

3

0.33%

5

TenneT 1.375% 26/06/2029

1

1.38%

12

TenneT 0.75% 26/06/2025

1

0.75%

8

3 Gorges Finance 1.3% 21/06/2024

1

1.3%

7

A Non-Finance (no suitable A vanilla Utility bonds issued during Q2)

5

1.12%

7.5

KFW 0.25% 30/06/2025

1

0.25%

8

Kommunekredit 0.75% 18/05/2027

1

0.75%

10

AAA Quasi Governments

9

0.42%

8

Regie Autonome des Transports Paris 0.875% 25/05/2027

1

0.88%

10

AA Quasi Governments

14

079%

11.8

Berlin Hyp 0.125% 23/10/2023

1

3.88%

10

AAA Covered bonds

18

0.59%

8

© Climate Bonds Initiative November 2017.

www.climatebonds.net

This report was prepared jointly by the Climate Bonds Initiative and the International Finance Corporation. Support and funding was provided
by Pax World Mutual Funds, Obvion Hypotheken, and Rabobank. Additional funding was received from the Ministry of Finance of Japan and
the Government of the Kingdom of Denmark through the Ministry of Foreign Affairs.

Lead Author: Caroline Harrison
Co-Author: Bridget Boulle
Design: Godfrey Design
Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or
investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites.
The Climate Bonds Initiative is not endorsing, recommending or advising on the merits or otherwise of any investment or investment product and no information within this communication should be taken as such, norshould any information in this communication be relied upon in making any investment decision.
A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of
an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.

Green Bond Pricing in the Primary Market: April – June 201715