GREEN BOND PRICINGIN THE PRIMARY MARKET:
July - December 2019

H2
(Q3-Q4)2019

Report highlights• Report includes 49 bonds with a combined
face value of USD36bn issued between Julyand December 2019 (H2 2019)• Green bonds in EUR and USD performed well on
all metrics in the primary market, on average• Half of green bonds were sold to green investors• Green bonds in EUR and USD had tightenedmore than peers after 7 and 28 days, on average• Spotlight on sovereign green bond pricing –twelve governments have joined the green bondclub to dateWith funding support by Obvion Hyptheken and Lyxor Asset Management
Green Bond Pricing in the Primary Market: July - December 20191

Introduction
This is the ninth report in our pricing series,in which we observe how green bonds
perform in the primary markets. This report
includes bonds issued in the latter six
months of 2019 (H2 2019).
Our methodology is designed to capture
the most liquid portion of the green bondmarket and is therefore limited to USD and
EUR bonds with a minimum original issue
size of USD500m. We include developed
market (DM), emerging market (EM) andsupranational issuers (SNAT).1 The full
methodology is explained on page 21.
During this period, USD132bn of green
bonds were included in the Climate Bonds
Green Bonds Database. This paper includes

27% of that amount, or USD36bn, split
between 49 green bonds from 46 issuers.
EUR is the dominant currency with 36 bonds
totaling USD26bn (EUR23.5bn), while 13 USD
denominated bonds had a combined issue
size of USD10bn.

Report highlights• Green bonds achieved a higher bookcover and spread compression thanvanilla equivalents, on average.
See more on page 3• Half of green bonds were allocated toinvestors describing themselves as green
See more on page 6• We built yield curves for 19 bonds inour sample, of which just three priced
with normal new issue premia.
See more on page 7• Seven and 28 days after pricing green
bonds had, on average, tightened morethan vanilla baskets and matchedindices.
See more on page 12• Twelve governments have joined
the sovereign green bond cluband a similar number have statedtheir intention to do so. We shine a
spotlight on sovereign green bonds
in a special feature.
See more on pages 14

1. Market developments
In the second half of 2019, the hunt foryield created strong demand for all typesof bonds globally. Between January andOctober 2019, the ECB did not allocate newcapital to its asset purchase programme(APP) but continued to reinvest the proceeds
of maturing debt. In September 2019, it
announced an extension of the APP giving
extra momentum to qualifying assets.2
As a result, from November 2019, net
asset purchases were resumed at a rate of
EUR20bn per month for as long as deemednecessary to reinforce the expansionary
nature of the ECB’s policy rates. The APP
includes corporate, public sector, assetbacked, and covered bonds. As before, banks
were excluded, but car companies, whose
financial arms have banking licenses, were
not. Insurance companies were also eligible.
This technical support undoubtedly added
to the demand for eligible EUR green andvanilla bonds alike.
Meanwhile, in the US, the Fed. cut rates
three times: in July, September, andOctober, to ‘sustain the expansion’ of the
US economy.3 USD corporate bond yields
consequently remained low throughout thesecond half of the year.
Thirty qualifying issuers revisited the green
bond market in H2 2019 each with a single
bond. KfW celebrated five years as a green
bond issuer as its first bond, issued in 2014,
matured. KfW updated its Green Bond
Framework, and issued its first USD green
bond under the new framework a USD2bn
maturing in 2029.
A total of 17 issuers joined the green bondmarket during the observation period.
Thirteen of those issued financial corporate
green bonds including Generali 2030 (SSUB)

which was the first financial corporate green
bond in the senior subordinated category.
One debut issuer was classified as SSA, andfour were utilities, including E.ON that issued
a two tranche deal with five- and eleven-year
maturities. E.ON 2024 became the first BBBrated corporate bond to price through swaps.
Other bond labels
With the growth of the sustainablefinance agenda, the labelled bond market
has diversified beyond green bonds. The
issuance of sustainability and social bonds
has increased rapidly since 2018. The
Climate Bonds Initiative (Climate Bonds)
supports the Sustainable Development Goals(SDGs) and sees green bonds as directly
contributing to achieving specific SDG
outcomes, especially in relation to SDGs 6, 7,
9, 11, 13, 14 and 15.
However, Climate Bonds remains focusedon green bonds, which are specifically linked
to climate change mitigation, adaptation
and resilience. Consequently, under otherlabels, the proportion of proceeds allocatedto projects which are not also green may
not exceed 5% for inclusion in Climate
Bonds’ main labelled Green Bond Database.
As of the end of December 2019, labelled
instruments that focus on contributing to
non-climate related SDGs amounted to
USD85.1bn.4
With close to 30-years of experience lending
to finance sustainable projects, Deutsche
Kreditbank has a large loan portfolio which
it can pass on to investors via the capital
markets. So far, it has issued four EUR500m
bonds with sustainability-related labels. The
programme started in 2016 with a 5-year
green bond, followed by a 7-year green bondin 2017, both of which were senior unsecured.

Green Bond Pricing in the Primary Market: July - December 2019

In September 2018, Deutsche Kreditbank
introduced a separate social bondprogramme. The first bond from the newprogramme was a 10-year covered bondwith the use of proceeds split between social
housing, public supply, health and care,education, and research. In October 2019the 10-year blue social covered bond waslaunched to refinance loans given to urban,
local, or regional water supply, and sewage
companies. This bond (DKB 2029 (CO)) was
included in the Climate Bonds Green Bond
Database because 100% of the proceeds
were earmarked for water and wastewaterprojects, which are included in the Climate
Bonds Taxonomy.
Remarks:• Based on Moody’s and S&P credit ratings,
a broader range of seniority rankings forfinancial corporate green bonds wereobserved in 2019, including more examplesof the Senior Non-Preferred label. Seniority
rankings were denoted using the following
abbreviations: Senior Preferred = SP, Senior
Non-Preferred = SNP, Senior Subordinated= SSUB, Senior Unsecured = SU. We havealso denoted Covered bonds as CO. As
per our standard methodology, we match
the payment rank of the green bond whenselecting appropriate vanilla bonds withwhich to compare the performance.
• Ferrovie 2026 is compared to BBB
consumer discretionary which is consistent
with how we treated the first FERROV bondissued November 2017.
• We have excluded social bonds (where
known) from comparable baskets. We
suspect, though have not yet tested, thatinvestors attach a value to this label.

22. Spread compression and book size: Green bonds in both EUR and USD attracted larger book cover,and exhibited greater spread compressions, than vanilla equivalents• EUR: Average oversubscription
was 2.8x for green bonds, and2.0x for vanilla equivalents.
Spread compression averaged
13.3bps for green bonds and12.9bps for vanilla bonds.
• USD: Average oversubscription
was 2.7x for green bonds and 1.9x
for vanilla equivalents. Spreadcompression averaged 13.7bps
for green bonds and 11.0bps forvanilla bonds.
Green bonds are oversubscribed, andexperience spread tightening as part of thepricing process, just like vanilla bonds. To help
determine whether investors attach any value
to the green label, we compare green bonds
to carefully selected vanilla equivalents.
In November 2019, Climate Bonds publishedthe results of its first Green Bond European
Investor Survey, which identified actions
that could accelerate the growth of thegreen bond market, both in Europe andglobally.5 The results of the survey indicateda shortage of green bonds, with 67% of
respondents overweight the market. nonfinancial corporate and sovereign issuers
represented a substantially lower shareof currently available bonds compared tostated demand from respondents, almost
two-thirds of which said they prefer green
bonds where available, and competitively
priced. The results of the survey repeatedlyemphasised that there is unmet demand forgreen bonds.
In the first half of 2019, oversubscriptions
and average spread compressions were thelargest since we started monitoring them in2016. In H2, these metrics largely returned
to levels similar to those previously seen,
though with notable exceptions such asSantander 2029 (SP), and Stedin Holding2029 in EUR, and Welltower 2029 in USD.
On average, green bonds in both EUR and
USD achieved greater book cover, andexperienced larger spread compression thanvanilla equivalents.

EUR green bond pricing
Two thirds (65%) of EUR green bonds
achieved larger book cover than vanillaequivalents. Three EUR green bonds
experienced the same spread compression
as comparable vanilla baskets, while morethan half (55%) of the remaining green bonds
tightened more than their counterparts.
Book cover Two first-time green bondissuers, Santander 2026 (SP) and Generali
2030 (SSUB) both performed well on all
metrics starting with book cover of 5.4x
and 4.3x respectively. Both achieved larger
spread compression than vanilla equivalents,
and then tightened by more than theircomparable baskets and indices in theimmediate secondary market. The Generali
bond was the first green tier two capitalbond, while the Santander transaction
offered a larger than usual size (EUR1bn)
for a financial green bond. Generali 2030
(SSUB) priced inside its own yield curve.
There were not enough bonds to build a yield
curve for Santander.

22 out of 34 EUR green bonds attracted higher book cover than vanilla equivalents
Sovereign

SSA

Covered

AAA

AA

A

BBB

•

Green Bond•

Vanilla bondTimes oversubscribed

6
4

EUR Green bond averagebook cover: 2.8x

EUR Vanilla bond averagebook cover: 2.0x

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EUR Green bond averagebook cover: 2.8x

EUR Vanilla bond average book cover: 2.0x

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Green Bond Pricing in the Primary Market: July - December 20193

Spread compression E.ON, which is in the
BBB rating category, printed a EUR1.5bn(USD1.7bn) two-tranche deal split into 2024
and 2030 maturities, divided equally, withproceeds earmarked for renewable energy.
E.ON 2030 achieved spread tighteningof 37.5bps the largest observed since westarted monitoring in 2016. E.ON 2024
managed 30bps of tightening and priced
at 15bps through mid-swaps becoming thefirst bond in the BBB rating category to pricewith a negative yield, green or otherwise. We
could not construct a yield curve for E.ON as
the number of bonds was insufficient.
NB1: We were unable to source book cover
data for two EUR bonds: China Construct Bk
2022 and Ned. Water 2034. They are thus
not shown on the book cover charts. NB2:
There were no comparable bonds for KDB
2024 or Berlin Hyp. 2027 (CO). However,since the green bonds themselves did havedata, they are charted.

USD green bond pricing
In USD, four out of six green bonds forwhich we had both green and vanilla data
points attracted larger book cover thanvanilla baskets. Eleven out of 13 green bonds
achieved larger spread tightening comparedto vanilla equivalents.
Book cover Debut green bond issuer,
Welltower 2027, had the largest book coveramong USD green bonds at 5x, but there wasno book cover data for the comparable bonds.
Spread compression All corporate
green bonds in our sample tightened by atleast 15bps. Welltower 2027 and seasoned
green bond issuer ICBAS 2022 (SU)achieved the largest spread compression(25bps) among the USD denominated green
bonds. ICBAS tightened 15bps more than its
comparable basket.
Both EUR and USD green bonds appear tohave performed well compared to vanillapeers during the book building phase.
Demand remains robust, and as long as there
is a shortage of green labelled bonds, we
expect this to continue.
NB1: We were unable to source book cover
data for two USD bonds: EBRD 2024 andNorthern States Power Co. 2050. The bonds
are not charted. NB2: There is no book cover
data for the comparable baskets of five USD
green bonds: EIB 2029, Kommuninvest 2023,
Bank of Nova Scotia 2023 (SU), ICBAS 2022
(SU), and Welltower 2027. As the green bonds
themselves did have data, they are charted.
Methodology notes: Baskets comprisebonds that most closely match the green
bonds and are issued during the samequarter. The baskets in this publication
include between one and five bonds. For an
explanation of the methodology, see page 21,
and for summary statistics of the baskets,see page 18.

Four out of six USD green bonds attracted higher book cover than vanilla equivalents
Sovereign

SSA

Covered

AAA

AA

A

BBB

•

Green Bond•

Vanilla bondTimes oversubscribed

6
4

USD Green bondaverage book cover: 2.7x

USD Vanilla bond average book cover: 1.9x

2
0

KfW

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Green Bond Pricing in the Primary Market: July - December 20194

Five EUR green bonds tightened by the same as, and 16 tightened more than vanilla baskets during thepricing process
Sovereign

SSA

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Green Bond•

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spread compression: 13.3bps

EUR Vanilla bond average spreadcompression: 12.9bps

Eleven out of 13 USD green bonds tightened by more than their vanilla baskets during the pricing process
Sovereign0

SSA

Covered

AAA

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USD Green bond average
spread compression: 13.7bps

Green Bond Pricing in the Primary Market: July - December 2019

USD Vanilla bond average spreadcompression: -11bps

5

3. Green allocations: Half of green bonds in our sample were allocated to investors describing
themselves as green• 50% of the amount raised fromgreen bonds in our sample wasallocated to investors labellingthemselves as green or socially
responsible.
Investors declaring themselves as green are
growing in number and represent a uniquesource of support for green bond issuers,
contributing to the squeeze in demand forgreen bonds. Treasurers almost always
describe the inclusion of new investors as anintangible benefit of issuing green bonds.
Pricing remains a critical consideration, andUS-based investors including those describing
themselves as green, are particularly sensitive
to price tightening in the primary market. One
US issuer we contacted mentioned that its bondattracted a mixture of green and vanilla accounts
during book building, but the green investors were
the first to withdraw as pricing was tightened.
Benchmark sized green bonds which areare eligible for inclusion in broad market
bond indices, as well as specialised green

bond indices, are increasing in number. The
inclusion of green bonds in broad market
indices means that mainstream investors are
obliged to consider them along with vanillabonds. Overall, the 50% allocation to investors
describing themselves as green in our sample
translates into USD10bn of green bonds
allocated to green accounts, with a similar
amount bought by non-dedicated investors.
All 47 issuers (E.ON SE and Xcel Energy issued
two bonds each) in our H2 2019 sample were
contacted and invited to disclose the percentageof their green bond that was allocated toinvestors describing themselves as green orsocially responsible. Of the 36 issuers who
responded, 25 replied with the allocation split
between issuers who described themselves as
green, and those who did not. A further nine did
not want to share the distribution data. One did
not know, and one disclosed this but asked forthe number to be kept confidential. Among theissuers that did not state a precise split, several
noted the high participation of investors with agreen or ESG mandate.

As always, respondents to this questionemphasised that they had used their best
efforts to classify their investors. Berlin
Hyp, for example, noted that its definitionof Socially Responsible Investors used todetermine the 51% allocation, included puregreen bond investors, as well as those with
ESG requirements. By December 2020, thefirst set of screening criteria for the EU green
bond taxonomy will provide clear definitions
for green and sustainable assets. These
requirements will make it easier to define theexact nature of a green investor. Eventually,
we hope that all bond investors will actively
preference green bonds as part of theirinvestment strategy.
Methodology notes: Green investor
participation is provided by issuers. There isno methodology for defining a ‘green’ investor
and we acknowledge that this is subject tointerpretation. There is no way to monitor
how investors split their allocations of green
bonds among their different portfolios.

Half of green bonds were allocated to green investors
Declared green investor
Rating Group
EUR

0%

SSA

Average 50% was allocated to green investors

Not declared green investor
25%

50%

75%

100%

50%

75%

100%

NRW 2029
Corp Andina de Fomento 2026
DKB 2029 (CO)Soc. Gen 2029 (CO)Berlin Hyp 2027 (CO)SR Bank 2026 (CO)COV

CAFFIL 2029 (CO)Credit Agricole HL 2029 (CO)Berlin Hyp. 2029 (SP)LBBW 2026 (SNP)
SpareBank 1 SMN 2026 (SU)de Volksbank 2024 (SP)Credit Agricole 2025 (SNP)
Stedin Holding 2029
Santander 2029 (SP)Ferrovie 2026
EDP Finance 2026
Generali 2030 (SSUB)CPI Property 2027
Intesa 2024 (SP)

AA
A

BBB

USD
SSA

KfW 2029
EBRD 2024
Bank of Nova Scotia 2023 (SU)Public Service Co Colorado 2050
Northern States Power Co 2050
Duke 2029

A

0%

25%

Green Bond Pricing in the Primary Market: July - December 20196

4. The greenium: 16 out of 19 green bonds priced on or inside their yield curves

Sometimes, a bond may be issued with ahigher price, and thus lower yield comparedto outstanding debt. The bond will priceinside its own yield curve. This is known asa new issue concession; when present in agreen bond, we have termed it “greenium”.
There is no reason why a bond being
green should impact its price, since green
bonds rank pari-passu (on equal footing)with bonds of the same rank and issuer.
There is no credit enhancement to explain
pricing differences and issuers of green
bonds incur costs such as third-party
review and certification, although these are
typically negligible. Green bonds and vanillaequivalents are subject to the same market
dynamics such as supply, rate expectations,and geo-political issues.
In H2 2019, we were able to build yield
curves for 19 out of the 49 bonds in our
sample, eight of which had already issued
green bonds sharing similar characteristics.

Spotlight on Ned. Water

A limitation to building more yield curves
was presented by the various payment or
seniority rankings of the green bonds in our
sample.
Among our set of 19 green bonds, justthree priced with normal new issue premia
while eight priced on the yield curve. Sevenpriced inside their yield curve, exhibiting agreenium: in EUR, Municipality Fin. 2029,
EDP Finance 2026, Generali 2030 (SSUB),
and CAFFIL 2029 (CO). In USD, EIB 2029,
MidAmerican Energy 2050, and Duke 2029.
Since 2016, we have built yield curves for
89 EUR, and 44 USD green bonds (noting
the limitations of constructing yield curves
for bonds in our sample). The outcomesare shown right. Slightly under half of eachcurrency category priced with the traditional
new issue premia while just over half priced
either with a greenium, or on the yield curve.
The sample remains small and there isfragmentation among credit ratings andissuer types. Furthermore, the number ofinvestors actively seeking the green label
has increased over the period of observation
which is likely to have impacted pricing
dynamics of green bonds. We plan to explore
this topic in greater depth in the coming
months.

EUR green bond pricing
outcomes 2016-2019

On theyield curve
26%

Greenium
22%

EUR
New issue
premium
41%

USD green bond pricing
outcomes 2016-2019
Greenium14%
On theyield curve
43%

USD
New issue
premium
43%

Ned. Water 2034 EUR - new issue premium

Yield as of 23/09/2019

0.3
For Dutch development bank Nederlandse
0.3
Waterschapsbank (Ned. Water) we haveconstructed an EUR social bond curve with 0.2
eight data points, and a vanilla curve with
0.1 0
ten data points. The curves do not appear
0.0
to be differentiated. Ned. Water also has
two outstanding green bonds-0.1

Green bond 23/09/2019

The red dots are the bonds issued under-0.2 -0.3
New issue green bondthe social label; blue are the vanilla bonds. -0.3
While the curves have been plotted-0.4
independently, they are intertwined,
Green bond 25/08/2015
probably because Ned. Water has a focus -0.5
-0.6
on water and sustainability and all projects -0.6
0
5
10
15
20
are strictly filtered for their social and
0
5
10
15
20
environmental impacts. However, the green
New issue green bonds
Vanilla bonds
Seasoned green bondbond priced in 2015 appears to be tradingslightly tight in the secondary market,
Vanilla bonds issued on the same day as the green bondsuggesting that investors do attach value
to the green label, which is likely enhancedby the lack of supply of green bonds. The
new green Ned. Water 2034 bond, from
September 2019, priced just inside an older,2036 maturity, vanilla bond.

Green Bond Pricing in the Primary Market: July - December 2019

Bloomberg

The new issue premium is the extra yieldthat a buyer receives, and a seller pays fora new bond compared to where seasoned
bonds from the same issuer are trading in thesecondary market at the time of issuance. A
new issue premium is a standard feature of
the bond market.

25

25

7

Spotlight on EIB

EIB 2029 USD - on the green curve, greenium to vanilla curve

2.0
1.5
1.0

2.5

2.0

New issue green bond

1.5

1.0

00

33

66
Vanilla bonds

New issue green bonds

Spotlight on Engie SA

99

12
12

Yield as of 17/10/2019-0.05
Yield as of 30/10/2019

-0.10
-0.15
-0.20
-0.25
-0.30
-0.35

12
0.8

Social bond issued 30/10/2019

0

0.8

0.7

Existing social bond

0.6

-0.1

0.6

0.5

-0.2

0.4

-0.3

2

4

New issue green bonds

6

8

Vanilla bonds

10

12

0.3
0.2

Seasoned green bondGreen Bond Pricing in the Primary Market: July - December 2019

0.4

Bloomberg

0.00

10

0.1

Yield as of 14/10/2019

0.05

8

20
20

Credit Agricole 2025 (SNP) EUR - on the curve

Bloomberg

0.10

6Bloomberg

Engie 2030 EUR - new issue premium

Deutsche Kreditbank 2029 (CO) EUR - new issuepremium
4

15
15

Seasoned green bond

2.5
Engie is a utility company with a statedambition to become a world leader in the 1.5
1.2transition to zero carbon.7 Between 2012
Vanilla bond priced 17/10/2019
1.2
and 2018 Engie halved its emissions and
0.9plans to continue this trajectory. The issuer
has two yield curves, one green, one vanilla, 0.9
0.6
but they are in fact difficult to separate. This
Green bond 17/10/2019
0.6
suggests than investors believe they are
0.3
lending to a green organisation, or at least
0.3
one that has a stated transition pathway,
New issue green bond0when buying Engie debt. In October 2019,
0.0
Engie issued its 11th green bond with the-0.3
EUR900m proceeds to be split equally-0.3
between Renewable Energy, Low Carbon
10
15
00
55
10
15
Transport, Low Carbon Buildings, Water, andLand Use. This bond priced with a normal
New issue green bonds
Vanilla bonds
Seasoned green bondnew issue premium but tightened more thanits vanilla basket and corresponding index in
the secondary market (see page 12).

2

Bloomberg

2.5

Yield as of 02/10/2019

As of the end of 2019, EIB had issued 45
labelled green bonds in 13 currencies.6
We constructed an EIB USD secondary
market green curve consisting of fourbonds, and a vanilla curve including 15
bonds. The EIB 2029 USD priced on thegreen curve, but with a greenium to thevanilla curve. In H1 2019, we looked at
the EIB 2042 EUR, which priced in thesame way. In both currencies, it appears
that EIB’s green bonds were being priced
relative to its green curve, at a discountto its vanilla curves.

0.2

4
4

6
6

88

10
10

Non-green bond issued on the same day as the green bonds
8

Credit Agricole HL (CO) EUR - on the curve

Welltower 2027 USD - on the curve

0.5

4.0

-0.1
-0.2
-0.3
-0.4

-0.2
-0.4
0

5

10
10

15
15

20
20

SocGen 2025 (CO) EUR - on the curve
4

6

2

8

2.0

0
0

10
3.0

2.5

Bloomberg

2.0

4

6

8

10

Municipality Fin. 2029 EUR - greenium

55

10
10

15
15

20
20

1.5

3.0

2.5

2.0

1.5

1
1

2
2

33

44

55

66

77

88

MidAmerican Energy 2050 USD - greenium

0.3

3.5

3.5

0.2

3.0
2.5

-0.1
-0.2

2.0

Bloomberg

-0.3
-0.4

33

Yield as of 01/10/2019

066

New issue green bonds

99

Vanilla bonds

1212

1515

1.5

Seasoned green bondGreen Bond Pricing in the Primary Market: July - December 2019

3.0

2.5

2.0

1.5

0
0

5
5

10
10

15
15

Bloomberg

0.1

Yield as of 10/09/2019

0.30
0.25
0.20
0.15
0.10
0.05
0.00
-0.05
-0.10
-0.15
-0.20
-0.25
-0.30
-0.35
-0.40

2.0

PNC 2024 USD - on the curve

Yield as of 08/07/2019

2
0.15 0.1
0.10
0.05 00.00-0.05 -0.1
-0.10
-0.15 -0.2
-0.20
-0.25 -0.3
-0.30
-0.35
-0.4
-0.40

2.5

2.5

Bloomberg

0.0

3.0

3.0

0

Bloomberg

Yield as of 27/11/2019

0.1

Yield as of 09/12/2019

0.2

3.5

3.5

0.2

Yield as of 29/10/2019

0.3

0.4

Bloomberg

0.4

4.0

20
20

Non-green bond issued on the same day as the green bonds

9

NRW Bank 2029 EUR - on the curve
15

20

25

30

5

10

15

20

25

30

Bloomberg

KFW 2029 USD - on the curve

0

0.2
0.1

1.5

0
0

55

10
10

15
15

20
20

Generali 2030 (SU) EUR - greenium

1.5
1.0
0.5
0.0

20

-0.1

0.4
0.3
0.2
0.1
0
-0.1
22

3
3

4
4

55

66

77

88

3.0

3.5

3.5

2.5
2.0

3.0

1.5
1.0

2.5

0.5
0

22

44

New issue green bonds

6
6

Vanilla bonds

88

10
10

2.0

Seasoned green bondGreen Bond Pricing in the Primary Market: July - December 2019

3.0

2.5

2.0

55

10
10

15
15

Bloomberg

2.0

0.0

Yield as of 21/11/2019

2.5

20

15

Duke Energy Florida LLC 2029 USD - greenium

Bloomberg

3.0

Yield as of 23/09/2019

Yield as of 10/09/2019

2.0

Bloomberg

Yield as of 10/09/2019

0.3

1.5

15

10

0.5

0.4

2.0

10

5

EDP Finance 2026 EUR - greenium

2.5

2.5

5

0

Bloomberg

0

0.8

0.8
0.7 0.6
0.6
0.5 0.4
0.4
0.3 0.2
0.2
0.1 0
0.0
-0.1 -0.2-0.2-0.3 -0.4-0.4

Bloomberg

10

Yield as of 07/10/2019

0.3
0.2
0.2
0.1
0
0.0
-0.1
-0.2
-0.2
-0.3
-0.4
-0.4
-0.5
-0.6
-0.6

5

Yield as of 12/11/2019

00.4

Kommunekredit 2039 EUR - on the curve20
20

Non-green bond issued on the same day as the green bonds

10

5

10

15

0

20.2

20

0.1
0.0
Yield as of 12/11/2019-0.1

Yield as of 05/11/2019

00.6
0.6
0.5
0.4
0.4
0.3
0.2
0.2
0.1
0
0.0
-0.1
-0.2
-0.2
-0.3
-0.4
-0.4

Berlin Hyp. 2027 (CO) EUR - new issue premium-0.2

Bloomberg

-0.3

5

10

15

20

-0.4
-0.5

4

6

8

10

4

6

8

10

0.1
0
-0.1
-0.2
-0.3
-0.4

Bloomberg

CAFFIL 2029 (CO) EUR - greenium

-0.5

2

Methodology notes: We use yield on issue date, which reflects the pricethat the green bond offered on the pricing date. For comparable bonds,
we use the yield-to-convention-mid.
For all bonds, we use modified duration to mid, and all the data is asof the pricing date of the green bond. The modified duration is thepercentage price change of a security for a given change in yield. The
modified duration increases with risk.
First, we plot seasoned vanilla bonds (blue dots) and fit a 2nd orderpolynomial yield curve. Next we overlay any seasoned green bonds(orange), and finally, we add our subject bonds (green). We include theyield curves of bonds in our sample with a minimum of four suitablecomparable bonds.
Comparable bonds used for this exercise must fit the specification
for green bond selection outlined on page 21, except that the use ofproceeds is not limited. Bonds must share the same credit rating andpayment rank as the green bond and have been issued on or after
01/01/2010.

New issue green bonds

Vanilla bonds

Seasoned green bondGreen Bond Pricing in the Primary Market: July - December 2019Non-green bond issued on the same day as the green bonds

11

5. Performance in the immediate secondary market• 7 days after pricing, 60% of
green bonds had tightened morethan comparable vanilla baskets;
57% had tightened more thantheir corresponding index.

• 28 days after pricing, 56% of
green bonds had tightened morethan comparable vanilla baskets;
58% had tightened more thantheir corresponding index.

% change 1 week
Rating Bond
Group
SSA

COV

NIB 2026
Ned. Water 2034
Eurofima 2034
NRW 2029
Asian DB 2029
Kommunekredit 2039
Corp Andina de Fomento 2026
Soc. Gen. 2029 (CO)Berlin Hyp 2027 (CO)SR Bank 2026 (CO)Sparebank Soer Boligkreditt 2026 (CO)

AA

A

BBB

SSA

AA
A

BBB

DKB 2029 (CO)CAFFIL 2029 (CO)Credit Agricole HL 2029 (CO)KDB 2024
Municipality Fin. 2029
Berlin Hyp. 2029 (SP)Mitsubishi UFJ 2029 (SU)LBBW 2026 (SNP)
SpareBank 1 SMN 2026 (SU)de Volksbank 2024 (SP)Raiffeisen Bank 2026 (SU)Credit Agricole 2025 (SNP)
China Construct Bk 2022
Engie 2030
Rabobank 2026 (SNP)
Stedin Holding 2029
Santander 2026 (SP)Ferrovie 2026
E.ON 2030
E.ON 2024
Covivo 2031
EDP Finance 2026
Generali 2030 (SSUB)CPI Property 2027
Intesa 2024 (SP)KfW 2029
EBRD 2024
EIB 2029
Kommuninvest 2023
MidAmerican Energy 2050
Bank of Nova Scotia 2023 (SU)Public Service Co Colorado 2050
Northern States Power Co 2050
ICBAS 2022 (SU)PNC Financial Services 2024
Duke 2029
Host Hotels & Resorts 2029
Welltower 2027

Green Bond
0.5%
0.5%
0.6%
43.8%
-18.3%
-9.5%
-4.1%
16.8%
-13.7%
8.4%
23.8%-50.0%
4.0%
19.8%
4.0%
14.9%
-15.9%-18.5%
-2.1%
-7.5%
2.4%
-6.0%
-9.5%
-4.5%
-16.1%
-2.7%
-6.5%
-4.4%
-18.4%
3.4%
20.3%
7.5%
-6.9%
-8.6%
-4.5%
-5.9%
-48.2%-11.5%
-4.7%
16.2%
-3.5%
-7.1%
-5.2%
4.3%
-1.2%
14.5%
2.1%
3.2%
-14.2%

Many bonds deliver price tightening in theimmediate secondary market since investors
may want to increase their position oropen a position in a bond they did not get
allocated. Timing is an important factor,% change 1 month
VanillaBasket8.3%-21.9%-21.9%
5.3%
5.3%
60.2%
29.2%
17.9%
17.9%
11.1%
1.9%
12.9%
5.8%
12.9%
N/A
35.4%
N/A
-2.0%
14.5%
-11.5%
1.6%-11.5%
5.0%-1.3%-12.0%
5.0%
-3.0%
-3.2%
6.3%
-9.3%
-7.6%
-2.5%
-7.6%
-9.9%
-26.8%-1.0%-10.5%-2.8%-27.8%-36.0%-2.0%
0.0%-33.9%-33.9%
0.8%-15.1%
-0.1%
9.5%
-5.0%

Green Bond Pricing in the Primary Market: July - December 2019

CorrespondingiBoxx Index

Green Bond

-16.1%-1.6%
1.5%-11.7%
3.3%
5.9%
18.3%
-2.9%
4.2%
4.2%
3.6%
-4.0%
-2.4%
16.5%
-2.8%
-4.0%
-8.2%
-3.6%
-6.4%
1.8%
-1.9%
6.6%
-6.7%
-9.3%
-3.4%
-5.7%
2.3%
1.9%
-4.4%
0.7%
0.0%
-6.2%
-3.0%
-3.9%
-4.2%
-0.4%
2.8%
11.9%
-2.8%
-0.4%
1.3%
-2.7%
1.3%
-1.7%
-6.1%
1.2%
-3.8%
-1.2%
-4.8%

-3.9%
-8.5%
-8.0%
60.3%
6.9%
-3.7%
-4.8%
5.8%
13.3%
-3.4%
2.8%
-69.3%
7.5%
34.5%
9.5%
-3.1%
-8.0%
-36.1%
-3.9%
-7.2%
-0.1%
-8.6%
-6.4%
-18.6%-26.6%
5.6%-9.5%-31.3%-30.1%
5.4%
54.5%
9.1%
-7.0%
-21.2%-8.7%-22.9%-26.4%
11.5%-58.5%
26.7%-22.0%-3.3%-4.5%-10.0%-1.3%
5.5%-18.1%
5.5%-20.0%

VanillaBasket
-4.6%
-8.4%
-8.4%
-7.1%
-7.1%
81.9%
28.5%
14.9%
14.9%
39.7%
-2.4%
-18.9%
9.5%-18.9%
N/A
32.7%
N/A
-12.7%
17.3%-9.8%-12.6%
-9.8%
7.4%
-9.4%
-22.5%
7.4%-10.9%
-5.2%
5.4%
-0.7%
4.9%
-4.4%
4.9%
-5.0%
-35.3%-13.8%-4.9%-24.5%-22.2%-2.1%-12.2%-6.6%-38.2%-38.2%
0.8%-23.4%-5.1%
6.3%-10.9%

CorrespondingiBoxx Index-32.3%-13.5%-8.4%-19.7%
4.2%
11.0%
17.1%
-12.2%
2.5%
0.7%
-5.2%
-14.8%
6.8%
4.3%-18.8%
23.8%
10.2%
4.4%
10.5%
4.0%
6.0%
-2.9%
-12.8%-16.1%-11.7%-0.1%
5.5%-15.2%
-4.9%
-1.2%
1.2%
-2.7%
2.7%
-10.1%-7.0%-14.8%
12.8%
11.2%
-7.1%
-6.2%
-9.6%
4.7%
5.0%
-0.7%
-3.2%
-0.2%
-14.3%
4.1%
-5.6%

12

because bond indices rebalance at eachmonth end. Therefore, for bonds issued earlyin the month, this could be an opportunity
for managers to add some off-benchmark
performance before bonds are added tobenchmark indices. Once bonds enter
indices, except for credit events, liquidity
evaporates, and accurate spreads are quoted
on a bilateral basis. Our consideration of thesecondary market only extends to one monthafter the pricing date of each bond.
In H2 2019, 63% of green bonds in our
sample had tightened seven days after
pricing; after 28 days, this had increased to73%. To contextualise this spread tightening,
we compare each green bond to twoalternatives. Firstly, we match each green
bond to a vanilla bond or a basket of vanillabonds sharing similar characteristics, issued
during the same quarter (see methodology
notes). This comparison is a proxy for theopportunity cost to the investor. Secondly,
we compare each green bond to a matchedindex to monitor their performance against‘the market’.
After seven days,• 60% of green bonds had tightened bymore than their vanilla baskets: 63% of
EUR and 54% of USD green bonds• 57% of green bonds had tightened bymore than their corresponding index: 54%
of EUR and 62% of USD green bonds
These numbers are a bit higher compared toH1 2019, perhaps because primary demand
returned to more normal levels in H2. The threebonds (for which we had data) that priced
with a new issue premium all tightened in
the secondary markets by a larger magnitude
than vanilla equivalents: DKB 2029 (CO),Engie 2030, and BHH 2029 (SP). Perhaps
investors saw this as an opportunity to profit
from the more generous pricing levels.
After 28 days,• 56% of green bonds had tightened bymore than their vanilla baskets: 59% of
EUR and 50% of USD green bonds• 58% of green bonds had also tightenedwhen compared to corresponding indices:
56% of EUR and 67% of USD green bonds
Six out of the seven bonds that we identified
as having priced with a greenium hadconceded against comparables after sevendays but surged 28 days after pricing. Thisbehaviour offers benefits for both the issuer
and investors. Overall, demand for all typesof green bonds remains buoyant 28 days
after pricing.

Methodology notes:
1. Comparable baskets. Each green bond ismatched with a basket of vanilla comparable
bonds issued in the same quarter (except
where noted), fitting the parametersdescribed on page 21. The number of bonds
in each basket ranges from one to fivedepending on what has been issued in a given
quarter. Summary statistics of the baskets
are on page 21. Bonds can behave differently
according to which part of the month they
are issued in. Geo-political events can also
influence bond prices. We use comparable
baskets because green and vanilla bonds
sharing similar characteristics are rarely
issued on the same day. We have createdthis proxy to illustrate what else an investor
could have done with their money during thesame quarter. 2. Indices. We compare eachbond to a standard iBoxx index. The indices
are granulated by currency, asset class, tenor,
and credit rating all of which can influence thebehaviour of a bond. Each bond is therefore
compared to an index sharing similar
characteristics, for example, MidAmerican
Energy 2050 is matched with the iBoxx USD
AA Corporate 10+ Years index.
Seven calendar days include five data
observations. Twenty-eight calendar days
include 20 data observations.

6. Green bond ETF
In October 2019 Lyxor launched its second
green bond ETF. The Lyxor Green Bond ESG
Screened fund includes green bonds overlaid
with an ESG filter. The fund was designed
to complement the Lyxor Green Bond DR
UCITS ETF, the very first green bond ETF
introduced in February 2017, and now brings

the number of green bond ETF products tosix. Growth in the assets of some of thesefunds has been quite startling. At the endof December 2019, the Lyxor Green Bond
DR UCITS ETF was 33 times larger thanat launch. The Franklin Liberty Euro Green
Bond ETF initiated in April 2019, had grownby 50% by December. ETF provide a vehicle
for passive investors to replicate the green
bond market. The growth of green labelled
ETF represents another source of demand forthe green label, which is used to determine
inclusion.

Size at launch

AUM Dec 2019

ETF name

Currency

Index

Launch date

Lyxor Green Bond DR UCITS ETF

EURSolactive Green Bond Index

February 2017

EUR5m

EUR165m

Van Eck Vectors Green Bond ETF

USD

S&P Green Bond Select Index

March 2017

USD5m

USD27miShares Global Green Bond ETF

USD

Bloomberg Barclays MSCI
Global Green Bond SelectNovember 2018

USD25m

USD38mUC MSCI European Green Bond
ETF

EUR

Bloomberg Barclays MSCI
European GB Issuer Capped
EUR Index

November 2018

EUR 20m

EUR21mFranklin Liberty Euro Green Bond
ETF

EUR

Bloomberg Barclays MSCIEuro Green Bond Index

April 2019

EUR10m

EUR16mLyxor Green Bond ESG Screened

EUR

Solactive Green ESG BondEUR USD IG TR Index

October 2019

EUR4m

EUR4m

Green Bond Pricing in the Primary Market: July - December 201913

7. Spotlight: Sovereign green bonds can help to meet the objectives of the Paris agreement.
Who is in the sovereign green bond club?
As of December 2019, twelve governments
had joined the sovereign green bond club.
Between them, issuing 19 sovereign green
bonds totalling USD53.7bn, almost half ofwhich was issued in 2019 (USD24.5bn). The
Netherlands, Hong Kong and Chile issued
debut sovereign green bonds during the year;
Poland, Indonesia and Nigeria returned tothe market; and France, Belgium and Ireland
reopened existing bonds.
Poland got the market started in December
2016, with a EUR750m 5-Year green bond.
Subsequently Poland has issued three morebonds, making it the most prolific issuer ofindividual green sovereigns. The French green
OAT (GrOAT) is the largest single sovereign
green bond having been tapped seven times,
reaching EUR23.3bn by the end of 2019.
By the end of 2019, Nigeria and Fiji had
issued in local currencies and the remainder

in either EUR or USD. Poland, France,
Belgium, Lithuania, the Netherlands, Ireland
and Chile had issued in EUR taking thelion’s share of the cumulative USD53.7bn.
The Seychelles, Indonesia, Hong Kong andChile collectively issued USD4.4bn in USD.
There is huge potential for growth of USD
denominated issuance if more EM issuers
come to the market.
For governments with access to domestic andinternational capital markets, sovereign green
bonds can help attract the private sectorbased investment needed for sustainable
developments and to fulfil the objectives
included in each country’s Nationally
Determined Contributions (NDCs).
In accordance with the Paris Agreement,
NDCs should be communicated by eachparty and recorded in a public registry. As
of February 2020, 186 nations out of 196
parties had submitted their NDCs each ofwhich includes a roadmap for that country tomeet their stated commitments. Sovereign
green bond issuance has a role to play in the
NDC process.
Investors want more sovereign green bonds
Sovereign green bonds are well understood,
frequently issued, products that can bringscale to the market through benchmark
pricing, liquidity, and precedent. The resultsof Climate Bonds Green Bond European
Investor Survey published in November 2019highlighted a lack of supply in all types ofgreen bonds.8 Sovereigns and non-financial
corporates were the two asset classes inwhich institutional investors stated they
particularly wanted to buy more green bonds.
Sovereign pricing performance
To date, 13 sovereign green bonds from eight
issuers have qualified for our pricing analysis.
In order to do so, bonds must fit the size andother parameters set out in the methodology
on page 21.

Sovereign pricing performance
Pricing
relative toissuer’s yield

Covered in pricing paper

12/12/2016

New issue
premium

January 2016-March 2017

7.00

24/01/2017

Greenium

January 2016-March 2017

EUR

1.00

31/01/2018

On the curve

January-June 2018

BBB/Baa2

USD

1.25 22/02/2018

New issue
premium

January-June 2018

22/04/2033

AA/AaaEUR

4.50 26/02/2018

On the curve

January-June 2018

1.35%

18/03/2031

A+/A2

EUR

3.00

10/10/2018

On the curve

July – December 2018

Indonesia

3.9%

22/02/2024

BBB-/Baa2 USD

0.75

12/02/2019

On the curve

See note below

Poland2%

08/03/2049

A-/A2

EUR

0.50 28/02/2019

New issue
premium

January-June 2019

Poland1%

07/03/2029

A-/A2

EUR

1.50 28/02/2019

On the curve

January-June 2019

Netherlands

0.5%

15/01/2040

AAA/AAA EUR

6.00 21/05/2019

Greenium

January-June 2019

Hong Kong

2.5%

28/05/2024

AA+/Aa2

USD

1.00 21/05/2019

No yield curve

January-June 2019

Chile

3.5%

25/01/2050

A+/A1

USD

1.42

Greenium

January-June 2019

Chile

0.83%

02/06/2031

A+/A1

EUR

0.86 25/06/2019

On the curve

January-June 2019

Maturity

S&P/
Moody’s
ratingCurrency

0.5%

20/12/2021

A-/A2

EUR

0.75

France*1.75%

25/06/2039

AA/Aa2

EUR

Poland1.125%

07/08/2026

A-/A2

Indonesia

3.75%

01/03/2023

Belgium**

1.25%

Ireland***IssuerCouponPolandPricing date
Initialsize(USDbn)17/06/2019

Subsequent taps to the end of 2019:* France - FRTR: EUR1.632bn 26/05/2017; EUR 1.065bn 01/12/2017; EUR1.096bn 30/03/2018; EUR4bn 26/06/2018; EUR1.737bn 07/02/2019; EUR2.471bn 02/05/2019; EUR1.676bn 05/09/2019** Belgium - BGB: EUR1.272bn 18/03/2019; EUR 1.002bn 22/07/2019; EUR0.112bn 29/07/2019***Ireland – IRISH: EUR2.0bn 10/10/2019
NB: The Indonesia 3.9% 22/02/204 did not have enough bookbuilding data for inclusion in our pricing paper, but we were able to build a yield curve

Green Bond Pricing in the Primary Market: July - December 201914

Selected sovereign green issuers - Use of proceeds
EnergyTransport

Buildings

Water

Waste

Industry

Land Use

ICT

Unallocated A&R

80%

100%

PolandFranceIndonesia
Belgium
IrelandNetherlands
Hong Kong
Chile
0%

20%

Use of proceeds
Green bonds can be used to fund a range ofinfrastructure projects, many of which are
already being funded via vanilla sovereign
bonds. Guided by its NDC targets, eachgovernment can develop its own strategy as
indicated by the varied use of proceeds ofthe eight sovereign issuers included in ourrecent pricing analysis. Hong Kong shared
the proceeds of its bond between sevencategories and was the only sovereign green
bond to allocate proceeds to Industry. Chile’s

40%

60%

initial bonds mostly distributed the funds to
low-carbon Transport, predominantly adding
to and upgrading its metro lines (85%).9 To
date, no sovereign green bond has included
ICT among the use of proceeds

it challenging to find comparable data forsovereign green bonds. For ten sovereign
green bonds for which we had data for bothlegs of the analysis, half attracted higher
book cover than vanilla equivalents.

Book-building

All sovereign green bonds in our sample except
one achieved larger spread compression thantheir comparable baskets.10 This suggeststhat investors buying green bonds are stickier,possibly because the choice of bonds is solimited, i.e. they need to invest in green labelledbonds to meet their investment mandates.

Green bonds are compared to vanillaequivalents to determine whether themagnitude of oversubscription and pricetightening is different. Fewer new sovereign
bonds are issued compared to other asset
classes such as corporates, which makes

Five out of ten sovereigns attracted higher book cover than vanilla equivalents
5
4

•

•

Green Bond

Vanilla bondTimes covered

3
2
1
0

d
lan

Po

1
3
21
33
24
24
39
26
29
29
49
49
50
03
02
20
20
20
20
20
20
20
20
20
20
20
d2
g
a2
a
e
s
e
d
d
e
d
n
i
i
l
m
l
n
c
i
i
d
a
n
n
n
s
s
l
u
n
n
e
e
la
la
la
Ko
Ch
Ch
Ire
lgi
rla
on
on
Fra
Po
Po
Po
Be
ong
the
Ind
Ind
H
e
N

We could not find book cover data for comparable bonds for Poland 2021, France 2039 or Hong Kong 2024.

Ten out of 11 green sovereigns achieved larger spread compression than equivalentsnd

Spread compression

la
Po

9
4
3
4
04
02
02
02
9
33
9
6
s2
9
1
2
2
4
2
2
d
0
3
0
9
g2
3
n
2
0
0
0
a
a
5
2
0
n
i
i
0
a
2
2
2
2
l
0
0
o
s
s
2
r
m
e
e
2
2
K
d
d
d
on
on
nce
the
ng
ile
ile
and
lgiu
lan
lan
lan
Ho
Ch
Ch
Ne
Po
Po
Ind
Irel
Be
Ind
Po
Fra

21
20

0
-5
-10
-15
-20
-25
-30

•

Green Bond•

Vanilla bond

We could not source spread compression data for comparable bonds for Poland 2021, France 2039, or Ireland 2031.

Green Bond Pricing in the Primary Market: July - December 201915

Investor participation
Green bonds can introduce a broader investor
base to issuers, often encompassing support
from different regions. Dedicated buyers of green
bonds offer a unique source of support and many
mainstream investors actively give preference togreen bonds, where possible. On average, 52.5%of green bonds are sold to investors declaring
themselves green or socially responsible.
As noted, green bond investors are often
perceived as stickier since the investible
opportunity set is limited. Broad market
indices do not exclude green bonds, so
mainstream buyers have no reason not tobuy them, and the sovereign asset class(composed of vanilla bonds, apart from thosementioned here) constitutes the largest shareof all broad market indices. We expect thatthe value of the label will increase further as
the number of green bond ETF grows.
Anecdotally:• France advised that they had 200 namesin their green sovereign book, compared to
100 names they ordinarily get.
• NTMA (Ireland) informed Climate Bonds
that green investors had been allocatedmore than half of the total.
• 41% of Poland 2026 was allocated to green
investors. For Poland 2021, it was 61%.
• 29% of Indonesia 2023 was allocated togreen investors.
• Chile’s USD bond attracted interest from40 green investors and the EUR bondattracted 64 green investors. 71% of its
EUR bond was allocated to green investors.

The Bank for International Settlements(BIS) calculated that there were USD55.6tnof government bonds outstanding as ofDecember 2019.11 The current December
2019 total of USD53.7bn of sovereign green
bonds (USD60bn at the time of writing inearly March 2020) is less than 0.1% of total
sovereign debt showing there is ample roomfor growth. As Climate Bonds has repeatedly
noted, there’s a mix of G7, G20, OECD and
MENA nations that are yet to join the club.

• The Dutch State Treasury Agency(DTSA) offered priority allocation of
the Netherlands 2040 to ‘real money’(unleveraged) bidders willing to formallydeclare their green credentials. Thirty-two
investors registered this status, and 29% of
the bond was allocated to green investors
The greenium
Among sovereign green bonds, France, theNetherlands and Chile 2050 exhibited agreenium. Five sovereign green bonds havepriced on their curves, while three haveexhibited a normal new issue premium.
There were not enough comparable bonds tobuild a yield curve for Hong Kong.

There’s also plenty of room for multilateraldevelopment banks and development
finance institutions and other organisations
to assist smaller nations develop their green
finance capabilities including coming tomarket with a sovereign green bond. The IFC
was instrumental in Fiji’s sovereign green
bond while the IDB assisted Chile.

The French GrOAT has remained inside thevanilla yield curve in the secondary market.
This means that subsequent reopenings also
benefitted from pricing at a greenium. The
French Treasury has noted that the bond shares
all the liquidity features of its vanilla bonds.

The provision of capital is available from a
growing base of investors. Labelling debt as
green is an opportunity for governments todisplay their commitment to a low carbon
future and provide a lead to domestic
stakeholders including regulators, issuers
and investors. There is a wider impact ofsovereign green issuance that far outweighs
the actual amount issued.

The greenium is defined on page 7.
Green sovereigns have impact
The sovereign green offerings made to datehave been well received by the markets.
Alongside the twelve nations that have alreadyissued, at least another eleven have indicatedtheir intentions to join the sovereign green
bond club in 2020-2021. At the time of writing,
Mexico had commenced its roadshow. Egypt
had announced the appointment of banks toassist in the issuance process. Germany, Sweden
and Spain look to be proceeding with plans to
issue in the latter part of 2020. Indications for
2020/2021 have been observed from Colombia,
Denmark, Hungary, Italy, Kenya, and Peru.

In this COP26 year greater involvement ofprivate finance in climate investment is beingsought by governments.12 Nothing would
strengthen the exhortation for others to act
more than a statement that green sovereignis in the pipeline for 2020 or 2021.

SwedenDenmark

Netherlands
Belgium

Germany
Lithuania

Ireland

PolandHungary

France
Spain

Egypt
Italy

MexicoColumbia

Hong Kong

Nigeria

Peru

Kenya

Seychelles
Indonesia

Fiji

Climate Bonds Certified
Chile

Green Bond Pricing in the Primary Market: July - December 2019

Issued Green Sovereigns
Pipeline Green Sovereigns16

8. Conclusion
During the second half of 2019, slightly over
USD132bn of labelled green bonds wereadded to the Climate Bonds Green Bond
Database, exceeding the USD125bn capturedin H1.13 In H2, they were denominated in 28
currencies, EUR being the most popular as
usual, representing 37%.
The analysis presented in this paper is basedon 27% of the total green bond issuanceduring the observation period (USD36bn).
While over half of the EUR issuance waseligible for inclusion, only 20% of USD
green bonds were suitable. Most USD bonds(64%) were excluded for being too small.
For example, Fannie Mae issued USD15bn
worth of green bonds, but individually, eachof the 681 bonds was not big enough forinclusion.
On average, both EUR and USD green
bonds achieved higher book cover andgreater spread compression than vanillaequivalents. We could only build yield curves
for 19 bonds in our sample, of which justthree exhibited a new issue premium. The
remainder either priced with a greenium,or flat to the yield curve. In the immediate
secondary market green bonds tightened bya greater magnitude, on average, than bothcomparable vanilla baskets, and indices.
The results of our analysis indicate thatdemand for green bonds remains robust.
This scenario is ideal and can please bothtreasurers and investors alike.

largely unwilling to pay more for the label
while there is no requirement for them todo so.

We expect the strong demand for EUR green
bonds to be exacerbated by three trends:

More than with other asset classes/issuer
types, the issuance of sovereign green
bonds has the power to substantially scale
up green investments – especially for
infrastructure – while sending an importantsignal to the market and increasing thevisibility of green finance and projects among
the general public. As a clear reflection ofa government’s commitment towards a
low-carbon future, we expect many morecountries to join the sovereign green bondclub including the eleven who have alreadyindicated their intention.

1. The steady growth in the number of funds
looking for labelled green bond paper,
both via explicit green mandates and/or
investors preferencing green paper
2. The stealth mainstreaming of green
bonds is underway. The number of green
bonds being issued in benchmark size
is increasing, and such green bonds arethus eligible for inclusion in mainstream
benchmark indices. Benchmark index
constituents must be considered for
portfolio inclusion by passive funds,
irrespective of green preferencing
3. The growth in the number of green ETF
will continue to put pressure on the greenlabel where this is a feature of the policy
guidelines.
The USD green bond market remains broadly
isolated from these pressures at present.
The climate agenda and its ramifications
for investors have received less exposure in
North America compared to other regions.
Consequently, while investors may be
prepared to explore green bonds, they areThis analysis is based on a limited numberof green bonds, chosen according to theparameters outlined on page 21. Greenbonds issued in other currencies, structures,formats, and sizes may perform differently
from those discussed in this paper.
We started monitoring green bond pricing
in 2016, and after four years, at the end of2019 we had looked at 287 securities. As
the profile of green bonds has evolved in
the intervening period, pricing dynamics
have also been affected. We will continue tomonitor the behaviour of green bonds in the
primary and immediate secondary market.

EUR and USD were the dominant currencies for labelled green bonds in H2 201914%

EUR 37%12%
1%
2%Others
8%

11%

EUR

7%

Included in analysis
53%

Excluded:
Floating
Covered inprevious paper
High yield
Insufficient data
Tap
Too small

10%
CNY
9%

USD 36%

USD

37%
1%
3%

64%

1%
SEK 3%
JPY 3%
GBP 2%CAD 2%
Green Bond Pricing in the Primary Market: July - December 201917

EUR summary statistics of bonds used for comparison
Bonds sharing similar characteristics to green bonds in our sample
Q3 - Green bonds priced between July 01 and September 30 2019

Number ofbonds

Average Coupon(par weighted)

Maturity

Deal Size
EURbn

LBBW 0.375% 29/07/2026 (SNP)

1

0.0%

7

0.5

Svenska Handelsbanken AB 0.05% 09/03/26 (SNP)

1

0.05%

7

0.75

SpareBank 1 SMN 0.125% 11/09/2026 (SU)10.125%

7

0.5

Raiffeisen Bank International AG 0.375% 25/09/2026 (SU)10.375%

7

0.75

ANZ New Zealand Bank 0.375% 17/09/2029 (SU)10.375%

10

0.5

de Volksbank NV 0.01% 16/09/2024 (SP)

1

0.01%

5

0.5

A Banks 5 Years Senior Preferred20.125%

50.80

Societe Generale SFH SA 0.125% 18/07/2029

10.125%

10

1

Berlin Hyp AG 0.01% 19/07/2027

1

0.01%

8

0.5

AAA Covered bonds 8-10 Years

8

0.0565%9.3

0.77

Mitsubishi UFJ Financial Group Inc 0.848% 19/07/2029

10.848%

10

0.5

Mizuho Financial Group 0.402% 09/06/29

10.402%

10

0.50

Assicurazioni Generali SpA 2.124% 01/10/2030

12.124%

11

0.75

CCAMA 2.215% 16/09/2029

12.125%

10

0.50

Covivio 1.125% 17/09/2031

11.125%

12

0.5

A-BBB Real Estate 9-12 Years

4

0.971%

10

0.6

E.ON SE 0.35% 28/02/2030

10.350%

11

0.75

BBB Utilities 10-11 Years2

0.938%

10.5

0.6

E.ON SE 0% 28/08/2024

1

0.0%

5

0.75

EDP Finance BV 16/09/2026

10.375%

7

0.6

BBB Utilities 5-6 Years2

0.0521%5.5

0.5

Ferrovie dello Stato Italiane SpA 1.125% 09/07/2026

11.125%7

0.7

A-BBB Consumer Discretionary 6-8 Years3

0.405%

7

0.7

Municipality Finance PLC 0.05% 06/09/2029

1

0.05%

10

0.5

AAA-AA Regional Governments 10 Years

2

0.0%

10

0.75

Nordic Investment Bank 0% 25/09/2026

1

0.0%

7

0.5

KFW 0% 30/09/2026

1

0.0%

7

4.0

Eurofima 0.15% 10/10/2034

1

0.15%

15

0.5

Nederlandse Waterschapsbank NV 10/02/2034

1

0.0%

15

0.5

SSA 10-15 Years

2

0.05%

12.5

3.25

Korea Development Bank 0% 10/07/2024

1

0.0%

5

0.5

No suitable comps available

Green Bond Pricing in the Primary Market: July - December 201918

Q4 Green bond priced between October 01 and December 31 2019

Number ofbonds

Average Coupon(par weighted)

Maturity

Deal Size
EURbn

Credit Agricole SA 0.375% 21/10/2025

1

0.38%

6

1

Cooperatieve Rabobank UA 0.25% 30/10/2026

1

0.25%

7

0.75

A SNP Financials 5-7 Years

4

0.138%

6

0.75

China Construction Bank Corp/Lux. 0.05% 22/10/2022

1

0.05%

3

0.5

Export-Import Bank China 0% 15/10/2024

1

0.0%

5

0.7

Engie SA 0.5% 24/10/2030

1

0.50%

11

0.9

BBB Utilities 11-12 Years

4

0.61%

11.75

0.55

Stedin Holding NV 0.55 14/11/2029

1

0.50%

10

0.5

BBB Utilities 10 Years

2

0.86%

10

0.675

Banco Santander SA 0.3% 04/10/2026

1

0.30%

7

1

A SP Financials 7 Years

3

0.45%

7

0.83

CPI Property Group SA 1.625% 23/04/2027

1

1.63%

8

0.75

BBB Real Estate 8 Years2

0.750%

8

0.5

Intesa Sanpaolo SpA 0.75% 04/12/2024

1

0.75%

5

0.75

A SP Banks 5 Years

3

0.19%

5

0.67

SR-Boligkreditt AS 0.01% 08/10/2026

1

0.01%

7

0.5

Consumer Finance Covered 7 Years

3

0.01%

7

1.1

Sparebanken Soer Boligkreditt AS 0.01% 26/10/2026

1

0.01%

7

0.5

Banks Covered 7 Years

2

0.01%

7

0.55

Caisse Francaise de Financement Local 0.1% 13/11/2029

1

0.10%

10

0.75

Auckland Council 0.125% 2029

10.125%

10

0.5

Credit Agricole Home Loan SFH SA 0.05% 06/12/2029

1

0.05%

10

1.25

Deutsche Kreditbank AG 0.01% 11/07/2029

1

0.01%

10

0.5

Consumer Finance Covered 10 Years

3

0.02%

10

0.83

NRW Bank 0% 15/10/2029

1

0.0%

10

0.5

Asian Development Bank 0% 2029

1

0.0%

10

0.75

Development Banks 10 Years

2

0.0%

10

0.925

Kommunekredit 0.625% 21/11/2039

1

0.63%

20

0.5

Regionals 20 Years

2

0.05%

20

0.5

Corp Andina de Fomento 0.625% 20/11/2026

1

0.63%

7

0.75

Regionals 7-8 Years (one issued in Q3 2019)

2

0.0%

7.5

1

Berlin Hyp AG 0.5% 05/11/2029

1

0.50%

10

0.5

No suitable comps available

Green Bond Pricing in the Primary Market: July - December 201919

USD summary statistics of bonds used for comparison
Bonds sharing similar characteristics to green bonds in our sample
Q3 - Green bonds priced between July 01 and September 30 2019

Number ofbonds

Average Coupon(par weighted)

Maturity

Deal Size
EURbn

Public Service Co of Colorado 3.2% 01/03/2050

1

3.2%

31

0.55

Northern States Power Co/MN 2.9% 01/03/2050

1

2.9%

31

0.6

A Utilities 30 Years

3

3.16%

30

0.66

The Bank of Nova Scotia 2.375% 18/01/2023

12.375%

4

0.5

Truist Fin Corp 2.2% 16/03/2023

1

2.20%

4

1.1

Ind. & Comm. Bank of China Ltd/HK 2.25% 16/09/2022

1

2.25%

3

0.5

Xingsheng BVI Co Ltd 3.375% 07/25/2022

1

3.375%

3

0.5

Host Hotels & Resorts 2029 3.375% 15/12/2029

13.375%

10

0.65

BBB Real Estate 10 Years

4

3.318%

10

0.5

EBRD 1.625% 27/09/2024

11.625%5

0.7

SSA 5 Years2

1.455%

5

2.75

Kreditanstalt fuer Wiederaufbau 1.75% 14/09/2029

1

1.75%

10

2

Development Banks 10 Years

2

1.79%

10

1.5

Q4 - Green bonds priced between October 01 and December 31 2019

Number ofbonds

Average Coupon(par weighted)

Maturity

Deal Size
EURbn

PNC Financial Services Group Inc 2.2% 01/11/2024

1

2.2%

5

0.65

Truist Bank 2.15% 12/06/2024

1

2.2%

5

1.25

Duke Energy Florida LLC 2.5% 01/12/2029

1

2.5%

10

0.7

BBB Utilities 10 Years

5

2.79%

10

0.7

MidAmerican Energy Co 3.15% 15/04/2050

1

3.15%

31

0.6

AA-A Utilities 30 Years

5

3.29%

30

0.6

Welltower Inc 2.7% 15/02/2027

1

2.7%

8

0.5

BBB Healthcare 7 Years

2

2.25%

7

2.25

European Investment Bank 1.625% 09/10/2029

11.625%

101

Supranationals 10 Years

2

1.75%

10

2

Kommuninvest I Sverige AB 1.625% 24/04/2023

11.625%

4

1

Regionals 5 Years2

1.677%

5

1.75

Green Bond Pricing in the Primary Market: July - December 201920

Methodology
This paper includes labelled green bonds
issued during H2 2019. We have included
labelled green bonds meeting the following
specifications:• Announcement date between 01/07/2019
and 31/12/2019• Currency: EUR or USD• Benchmark size i.e. >= USD500m• Investment grade rated• Minimum term to maturity of three years
at issue• Consistent with the Climate Bonds
Taxonomy i.e. included in the Climate
Bonds Green Bond Database
Amortising, perpetual, floating-rate, andother non-vanilla structures were excluded.
We have designed these parameters to
capture the most liquid portion of the market
while not limiting the diversity of data.
All historical data is based on asset swap
spreads for EUR denominated bonds. USD
bonds are compared to a US treasury curve.
All historical data is from Refinitiv EIKON.

Two bonds qualified for our analysis but
could not be included due to the paucity ofavailable data:
IDB Trust Services (Islamic Development
Bank), ISDB 0.037% 04/12/2024

Endnotes
1. MSCI https://www.msci.com/market-classification
2. https://www.ecb.europa.eu/mopo/implement/omt/html/index.
en.html#cspp
3. https://www.federalreserve.gov/monetarypolicy/files/monetary20191030a1.pdf
4. Climate Bonds data
5. https://www.climatebonds.net/resources/reports/

MAF Sukuk Ltd., MAFUAE 3.9325%
28/02/2030

green-bond-european-investor-survey-2019
6. Climate Bonds Green Bond Database

Comparable baskets include bonds issued in
the same quarter as the subject green bond.
Comparable bonds must fit the parametersdescribed above except that the use ofproceeds is not green. The resulting baskets
are a proxy for how the money could havebeen invested in the same quarter in which
the green bond was issued. The number ofbonds in each basket ranges from one to
five bonds. We acknowledge that bonds
behave differently depending on when they
are issued and that geo-political events canaffect bond prices from one day to the next.
We have designed this proxy to circumventthe fact that vanilla bonds and green bonds
with similar characteristics are rarely issued
on the same day.

Climate bonds taxonomy

7. Gas, which is part of Engie’s transition, is not supported by the
8. https://www.climatebonds.net/resources/reports/
green-bond-european-investor-survey-2019
9. In cases where exact splits of use of proceeds are not given, they
are recorded as equal splits between categories in the Climate
Bonds Green Bond Database. This data is thus indicative only, theactual use of proceeds may be quite different, with even greater
variation between countries
10. There were no comparable bonds for the Hong Kong 2024
issued in Q2 2019. We matched the bond with Qatar 3.375%
14/03/2024 priced in March 2019.
11. BIS Quarterly Review, December 201912. https://www.bankofengland.co.uk/events/2020/february/
cop26-private-finance-agenda-launch
13. In the prior pricing paper, Green Bond Pricing in the PrimaryMarket January to June 2019, USD118bn of labelled green bonds
were identified as having been issued in H1 2019. This figure waslater augmented as more bonds issued during the period wereverified as green. This process of verification can take some time toestablish if more information on green credentials is needed.

www.climatebonds.net

Climate Bonds Initiative © March 2020
With funding support by Obvion Hyptheken and Lyxor Asset Management

Author: Caroline Harrison
Design: Godfrey Design

Suggested citation: Green Bond Pricing in
the Primary Market July-December 2019,
Harrison, C.

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

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: July - December 201921