The launch of Luxembourg’s first sovereign sustainability bond has been hailed a success after demand quickly exceeded the initial offer.
With an issue volume of €1.5b and a negative interest rate of -0.123%, the bond is the first of its kind to meet new EU green finance rules and will help finance and refinance sustainable projects of a social and green nature.
“The huge success of this first issuance of a sovereign sustainability bond by a European country proves that Luxembourg has put in place a credible and comprehensive framework for sustainable finance and underlines the potential of this new category of sovereign bonds, of which Luxembourg is the pioneer,” Luxembourg finance minister Pierre Gramegna (DP) said in a statement issued on Tuesday.
The bond, which has a 12-year maturity, will be listed on the Luxembourg Stock Exchange, the world’s leading platform for green and sustainable bonds. BCEE, BIL, BGL BNP Paribas, Société Générale and Deutsche Bank contributed to the transaction as joint lead managers.
Its choice of a “sustainability” bond, a blend of “green” bonds that finance environmentally friendly projects and “social” bonds that target spending with socially beneficial outcomes, contrasts with that of other European governments.
Like Germany last week, they have sold “green” bonds in their efforts to fund climate-friendly spending and support the development of sustainable finance.
Luxembourg will divide the proceeds equally between green and social projects, a finance ministry spokesperson told Reuters News Agency. With the outbreak of the pandemic, global “green” bond issuance took a backseat as “social” bond issuance, especially from development banks, rose sharply.
“We are seeing more interest to go down the social and sustainable route from sovereigns,” said Trisha Taneja, head of ESG advisory at Deutsche Bank, which managed the sale together with BCEE, BNP Paribas, BIL and Societe Generale.
Last year, Luxembourg launched a 10-step framework to implement the United Nations’ 17 sustainable development goals and drafted a climate law to cut greenhouse emissions by 55 percent until 2030.
“There is no sustainable development if you don’t have the social aspects in [the issuance framework] as well,” the Luxembourg finance ministry spokesperson said.
Still, Luxembourg ranks the lowest among EU countries in making progress to achieve the UN goals, according to the 2020 Sustainable Development Report. Significant challenges remain in areas like clean energy and climate action. At 12.5 billion euros ($14.77bn), investors demanded over eight times the amount Luxembourg raised and the bond priced for a yield of -0.123 percent, lead managers said.
Deutsche’s Taneja said Luxembourg’s commitment to disclosing alignment with the EU taxonomy on sustainable finance – rules ensuring investments do not prop up pollution – was appreciated by investors. Luxembourg will also be able to issue standalone green or social bonds via the bond’s framework in the future.
Source Delano