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France’s First Benchmark Green Bond Spurs SRI Market

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French electric utility Electricite de France’s (EDF) recent E1.4 billion Green Bond— the first benchmark issue of this nature from a corporate entity and the largest Green Bond sold to date across all classes of issuers—is making a huge contribution toward furthering the growth of an asset class that is becoming more and more important within the realm of socially responsible investing (SRI) to a range of different investors.

Although 60% of the EDF deal was bought by dedicated socially responsible investment products, the bond roadshow nevertheless also attracted a host of other kinds of investors from a range of different European countries. And a number of these investors chose to participate in the issue because of its innovative and attractive structure, said Blaise Bourdy, managing director and Co-Head of Corporate Origination for France, Belgium, LuxembourgDebt Capital Markets at Societe Generale, joint bookrunner on the deal.

Not only will EDF allocate the bond’s proceeds to best-in-class, new renewable energy projects undertaken by its subsidiary, EDF Energies Nouvelles, the transaction also sets the most advanced Green Bond market standards to date, including the tracking of bond proceeds, an independent second opinion on eligibility criteria and reporting to investors subject to independent verification, Bourdy said.

“Thanks to that, EDF was able to attract not only its traditional investors but also new investors,” Bourdy said. “EDF is the first corporate ever to issue a benchmark Green bond but we expect other corporates to follow suit.”

For firms such as Calvert Investments, that’s great news.

Calvert, a pioneer in socially responsible investing, launched a dedicated Green Bond fund at the end of October as a viable an investment product as any other mutual fund because of the growing importance of environmentally responsible initiatives across the globe, the need to finance them and the increasingly competitive nature of the Green Bond asset class, according to Cathy Roy, chief investment officer at Calvert.

“People used to believe that embracing socially responsible investing meant having to give up on returns but ours is a competitive product where there is no give up on an investment just because it’s a green investment, Roy said. “Everything we invest in has to meet our expectations because we are not giving up on returns and we want to provide investors with strong relative long-term risk adjusted returns.”

Trillions of dollars are needed across the globe to finance a host of environmental and social undertakings, but to date, most Green Bond issuers tend to be agencies or supranational entities, Roy said. Part of the reason for that is that issuers and underwriters have grappled with how to creatively structure Green Bond issues in order to meet their intended goals yet prove compelling enough to attract different kinds of investors.

Now, though, “we definitely have seen an increase in interest for Green Bonds from both institutional as well as retail investors,” Roy said, and if more corporates like EDF join the fray, then the marketplace is set for great growth going forward.

EDF’s benchmark Green Bond allows investors to get direct exposure to renewable energy projects with the same credit risk, same price and same liquidity as any other EDF bond, added Bourdy. “This bond also allows investors to support the voluntary commitment of a corporate for the energy transition with a very well structured product,” he said. 

The bond also lends great support to the development of the Green Bond market, because even though SRI is a growing area and many more institutional and retail investors are now factoring environmental, social and governance concerns in their investment process, the SRI marketplace has historically been more heavily skewed toward equity, Bourdy said. The balance has been shifting and in the past decade, it’s swung more sharply in favor of bonds, so “EDF wanted to benefit from this growing interest from investors and convey their key messages about their environmentally friendly policies,” he said.

The Calvert Green Bond Fund will invest in the bonds of companies that derive at least half of their revenues from clean technology or other environmentally beneficial technology, product or service, as well as in project bonds that among others, develop smart growth and transit, energy efficiency, pollution prevention, and green real estate to name a few.


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