Anglian Water paves the way for UK green bonds
“I would urge more companies to help tell their environmental story and influence the capital markets by issuing a green bond.”
Anglian Water's green bond listing is the first UK utility company to issue a green bond since the introduction of the Green Bond Principles in 2015. The £250 million eight year bond is also the first GBP-denominated green bond issued by a corporate since Transport for London listed on London Stock Exchange in April 2015.
Anglian Water has committed to a number of ambitious environmental goals, including pledging to become a carbon neutral business by 2050. Over the next 25 years, Anglian Water also aims to make the East of England resilient to the risks of drought and flooding. As part of its sustainability strategy, the company has put in place a robust Green Bond Framework which has ensured a smooth and easy issuing process.
"I would urge more companies to help tell their environmental story and influence the capital markets by issuing a green bond."
Jane Pilcher – Treasurer, Anglian Water
The size of the bond and the level of investor interest demonstrate the strong demand for green sterling bonds in the marketplace, further enhanced by a historical lack of supply.
Anglian Water saw the order book peak at £800 million, with orders from nearly 80 different investor accounts, including some SRI investors that came in for the first time. The bond was priced with an annual yield of 1.625 per cent, with the green label potentially contributing to a tighter spread compared to the company's conventional bonds.
According to the company the proceeds of the bond will be used to refinance sustainable water management or 'water recycling' projects with a reduced climate footprint, either in terms of energy or water use, or projects helping adapt to long term impacts of climate change such as flood risk. Anglian Water expects these projects to help substantial carbon reduction from their agreed baseline and they have committed in reporting on the impacts annually in the form of an extra page in the annual integrated report and in their Investor Report.
This issue further strengthens London's status as a leading global financial centre and global hub for green finance, offering a full suite of green products. In 2015, London Stock Exchange became the first exchange to launch dedicated green bond segments and made it a top priority to promote and support green and sustainable initiatives. Earlier this year London Stock Exchange Group published an ESG Guide setting out recommendations for good practice in Environmental, Social and Governance reporting (ESG). The global guide responds to demand from investors for a more consistent approach to ESG reporting, which is now a core part of the investment decision process and the intention is that it should help companies gain a clear understanding of what ESG information investors would like to see provided by companies.
London Stock Exchange is currently home to 46 green bonds, which have raised close to $13 billion in seven different currencies by different institutions, including supranationals, local governments and municipalities as well as corporates, many of which are world firsts in terms of currency, geography and structure.
When it comes to issuing green bonds, UK issuers lag compared to some international peers, for example only c.10% of issuances on London Stock Exchange's debt markets are from UK-domiciled entities. Whilst many UK fund managers now have specific green mandates, there has been a widespread lack of green bond issuance by UK corporates and financial institutions in global debt markets, which has resulted in a demand overhang. This presents an opportunity for UK issuers looking at potential green transactions as green capital raisings are likely to benefit from robust investor appetite, diverse order books and tighter pricing - as we have seen in the case of Anglian Water.
The Bank of England's corporate bond purchasing programme entered into force almost one year ago. The sterling corporate bond market has reacted positively to the new set of measures, bringing a flurry of new deals demonstrating that UK debt markets are resilient and open for business. July has seen sterling investment grade corporate bond issuance going back to the volumes seen in the same period of 2014 (£13.7 billion), according to Bloomberg data.
Anglian Water's successful issuance is a very positive signal for the UK green bond market and it sets an excellent example for other UK companies to follow and embrace green bonds.
|Issuer||Anglian Water Services Financing Plc|
|Issuance date||31 July 2017|
|Maturity date||10 August 2025 (8 year)|
|Arrangers||BNP Paribas, HSBC, ING, JP Morgan|
|2nd opinion||Green Bond second opinion report|