By becoming the first country to issue a sovereign green benchmark bond, France has confirmed its role as a driving force for the implementation of the goals of the December 2015 Paris Climate Agreement.
The lead managers for this syndicated bond issue were Barclays, BNP Paribas, Crédit Agricole CIB, Morgan Stanley, Natixis and SG CIB. Crédit Agricole CIB was in charge of structuring the Green OAT. All primary dealers were members of the syndicate.
Characteristics
At the end of the book-building process, which started on the morning of 24 January and ended at midday, total bids stood at more than €23bn and €7bn was allocated. The price has been set at 100.162 for a yield at issue of 1.741%.
The order book reflects the highly diverse investor base, including SRI specialists. Around 200 final investors supported the issue of this first sovereign green bond.
The demand stands from asset managers (33%), banks (21%), pension funds (20%), insurers (19%), official institutions (4%) and hedge funds (3%) is particularly noteworthy.
The geographical distribution of investors shows strong domestic and international demand for France’s first long-dated sovereign green bond, including investors from France (37%), the Netherlands (19%), the United Kingdom (18%), the Nordic countries (7%), Asia (3%) and America (2%).
The settlement date is 31 January 2017. The bond will be listed on Euronext Paris.
Framework for the Green OAT
In keeping with the commitments that France made for the implementation of the Paris Climate Agreement under the terms of the Energy Transition and Green Growth Act, France’s Green OAT will fund central government budget expenditure and expenditure under the “Invest for the Future” programme to fight climate change, adapt to climate change, protect biodiversity and fight pollution. More than €10bn in total Eligible Green Expenditure has been identified for AFT’s issuance in 2017.
The proceeds will be managed in compliance with the general budget rule and finance an equivalent amount of Eligible Green Expenditure. In practice, the proceeds of the Green OAT will be managed like those of a conventional OAT, but the allocations to Eligible Green Expenditure will be tracked and reported.
AFT will tap the Green OAT after the initial issuance to maintain its liquidity, as it does for conventional benchmark OATs. Consequently, the outstanding amount of the Green OAT will be increased by successive tap issues. The proceeds from tap issues will also be matched to Eligible Green Expenditure, as the cumulative amount of such expenditure rises over the coming years.
France’s choice of approach for its sovereign green bond has been approved by the Vigeo-Eiris Agency [1]. It is inspired by the best market practices, such as those set out in the “Green Bond Principles”, and the Transition Energétique et Ecologique pour le Climat” (TEEC) label for investment in energy and ecological transition, which requires innovative reporting. The French government will publish two annual reports for investors until full allocation of the funds: (i) a report on the use of proceeds and (ii) a report on the performance of Eligible Green Expenditure (“output report”). The French government will also publish reports on the ex-post environmental impact of Eligible Green Expenditure at appropriate intervals, depending on the type of expenditure. This is an unprecedented reporting commitment for a green bond and contributes to setting high standards on this market.
For this purpose, a “Green Bond Evaluation Council”, made up of independent scientists and economists of international repute will be tasked with evaluating the environmental performance of France’s Eligible Green Expenditures.
