Green Bonds. Version: September 2018

Transcription

1 Green Bonds Version: September 2018

2 Main developments 2017/2018 Continued growth in Green loans portfolio and Green Bonds issuance Launched the Nordic Position Paper on Green Bonds impact reporting (Oct 17) Awarded the UN Momentum for Change Award at COP23 in Bonn (Nov 17) Updated Green Bonds Framework (Mar 18) 2

3 Sweden and sustainable development First UN conference on the human environment in Stockholm 1972 the beginning of the global environmental movement. Current national agenda adopted by the parliament based on generational goal, 16 quality objectives and 24 milestone targets. Sweden aims to be among world s first fossile-free welfare nations. 3

4 Role of municipalities Drive Swedish green efforts, through investments & procurement, regulatory supervision, and responsibility for city planning and local infrastructure. >90 % of municipalities with green targets Investment focus on Real estate, Infrastructure, Energy, Water and Sewage Municipalities repr. >40% of the pop. have signed EU Covenant of Mayors Local govt sector accounts for >50% of all public sector investment in Sweden. Transparency & reporting stimulates development. 4

5 A leading Nordic green bond issuer Sweden s largest issuer of green bonds: - USD 600m green bond (maturing 04/2019) - SEK 5bn green bond (05/2020) - USD 500m green bond (06/2021) - SEK 4bn green bond (12/2021) Green loans offered to clients since 2015: - Current green loan portfolio includes committed funding for ~180 green investment projects in >85 Swedish cities and regions Strong potential pipeline, due to investment trends and green aggregation model SEK bn Green project portfolio and green bonds issuance SEK 3bn Green Bond (12/2021) USD 500m Green Bond (06/2021) SEK 5bn Green Bond (05/2020) USD 600m Green Bond (04/2019) Committed to projects Disbursed to projects 5

6 Green loans for eligible investments Projects may include: Bioenergy Geothermal Solar Wind Biogas from waste Hydro Wave Wind 6

7 Eligible Loans portfolio, 30 June 2018 * Planned, under construction, or, at cut-off date, max. 9 months has passed since completion Number of approved projects: 179 7

8 Green Bond issuance March 2016 USD 600m October 2016, SEK 5bn May 2017, USD 500 m April 2018, SEK 3bn Geographic distribution Geographic distribution Geographic distribution Geographic distribution US Nordics Nordics MEA Other Europé Sweden Other Nordic Other Europé Central Europé Americas UK MEA Sweden Other Europé Asia Asia Investor type distribution Investor type distribution Investor type distribution Investor type distribution Central banks & official inst. Asset managers Banks Central banks & official inst. Asset managers Banks Central banks & official inst. Asset managers Banks Fund managers Pensions Insurance Pension funds & ins. comp. Other Pension funds & ins. comp. Pension funds & ins. comp. Insurance Banks 8

9 Nordic Position Paper on Impact Reporting Joint position paper on impact reporting from ten Nordic public sector issuers Common positions on Financial, Environmental and Procedural aspects of impact reporting Initiated by Kommuninvest and launched at OECD Green Investment Financing Forum in Paris on October 24, 2017 and events in London, Stockholm, Oslo and Helsinki. 9

10 Winner of UN climate award 2017 Kommuninvest green finance model ( Green Finance and The Aggregation of Swedish Local Government Investments Projects ) awarded the UN Momentum for Change Climate Solutions Award Ceremony at COP 23 climate conference in Bonn, Germany, on 14 Nov, with Umeå Municipality and Kommuninvest present. Award recognizes innovative, concrete and scalable initiatives from around the world. Winners in Financing for Climate-Friendly Investment category showcase activities that promote low-carbon growth and highly resilient communities through the use of innovative financing mechanisms. unfccc.int 10

11 Kommuninvest Green Bonds Impact Report projects 80 cities & regions 515,000 tco2 emissions reduced/avoided annually annual emissions of ~350,000 cars w/ mileage of 12,000 kilometres Reporting according to Nordic Position Paper on Green Bonds Impact Reporting 11

12 Origination process Eligible Projects Swedish local government investment projects which promote the transition to low carbon and climate resilient growth. Eligible Projects shall be: part of applicant s systematic environmental work; be related to the national or regional environmental goals; target mitigation or adaption to climate change, or environmental mgmt. Green Bonds Majority of Green Bonds proceeds to new projects (on-going, planned or completed max 9 months before issue). Guideline: total Green Bonds issuance not to exceed total disbursements to Eligible Loans. Eligible Loans Loan application must be signed by applicant s Finance and Environmental departments Screening and pre-approval by Kommuninvest s Lending department Quarterly: Eligible Projects reviewed and finally approved by consensus vote in the Kommuninvest Green Bonds Environmental Committee. 12

13 Environmental Committee reviews projects Areas of Expertise Energy and climate strategy Urban development and planning Waste management and circular economy, ecological economics Environmental management Environmental engineering Sustainability reporting Tasks Audit and final approval of Green Loan applications Advisory board Review and decide on Green Loan reporting Review and approve Impact Reporting Participate in development of Green Bonds framework LtR: Björn Söderlundh, Head of Lending, Kommuninvest; Marta Fallgren, Env. Mgr, Uppsala County Council; Sara Pettersson, Urban Development Officer, City of Gothenburg; Susanne Arneborg, Energy Coordinator, Municipality of Borås; Petra Mangnäs, Client Advisor, Kommuninvest; Hanna Arneson, Sustainability Mgr, Municipality of Örebro; Andreas Hagnell, Senior Advisor Environment and Energy, Swedish Association of Local Authorities and Regions. 13

14 Management of proceeds Green bond proceeds are earmarked for climate mitigation or adaptation projects or other environmental sustainability purposes, in accordance with Kommuninvest s Green Bonds Framework. Volume of committed green loans should always exceed total green bonds issuance. Independent assurance by Kommuninvest s auditors. Guideline: Green Bonds issuance not to exceed disbursements to Eligible Loans. Total funding Liquidity reserve Lending portfolio High-quality & conservative: 100% of reserve eligible for central bank pledging at 30 June 2018; 93% in AAA-assets. SRI/ESG & mainstream investors Green Bonds Portfolio matching Eligible Loans Eligible Projects 14

15 Kommuninvest Green Bonds Framework Adhering to the four pillars of the Green Bond Principles 1. Use of Proceeds Investment projects undertaken by Swedish local governments that promote the transition to a lowcarbon and climate-resilient society. 3. Management of Proceeds Earmarked account for proceeds. Lending to Eligible Projects precedes Green Bond issuance. 4. Reporting i) Annual investor impact report regarding green ii) bond issuance and Eligible Projects; Annual sustainability reporting. 2. Project Evaluation and Selection i) Project identification and verification by the environmental and treasury functions in Kommuninvest s member ii) iii) municipalities/county councils; screening and pre-approval by Kommuninvest s Lending department; review and final approval by consensus vote in the Kommuninvest Green Bonds Environmental Committee. Assurance: i) Second opinion on framework from Cicero ii) Assurance report by auditors according to SNT

16 Sustainable Development Goals (SDGs) Kommuninvest Green Bonds Framework addresses six of the SDGs: #6 Clean Water and Sanitation #7 Affordable and Clean Energy #9 Industry, Innovation and Infrastructure #11 Sustainable Cities and Communities #13 Climate Action #15 Life on Land 16

17 Sustainability criteria All projects must: Promote the transition to a low-carbon and climate-resilient society Be part of the systematic environmental work in the applicant municipality or county council/region Be related to Sweden s national environmental objectives, or to regional environmental goals Target either mitigation of climate change, adaptation to climate change, or be a project related to environmental management in other areas than climate change. Additional requirement for Green buildings and energy efficiency 1. Residential multi-family buildings: New or existing buildings with at least 15 per cent less energy use per square metre and year than required by applicable regulation (Swedish Building Regulations (BBR 25)). 2. Non-residential buildings: New or existing buildings with at least 20 per cent less energy use per square metre and year than required by applicable regulation (Swedish Building Regulations (BBR 25)). New buildings are encouraged to also have a minimum certification of either 1) LEED gold, 2) BREEAM very good, 3) Environmental Building (Miljöbyggnad silver), 4) the Nordic Swan Ecolabel, 5) EU Green Building, 6) Feby-12 (Mini-energy building), or other certification of similar ambitions; however this is not a firm requirement. 3. Major renovations of buildings leading to a reduced energy use per square metre per year of at least 30 per cent or compliance with applicable regulations (Swedish Building Regulations (BBR 25)). 4. Energy efficiency measures in partial systems of existing buildings leading to at least 30 per cent less energy use. 17

18 Revised frameword, adopted 7 March ) Adjustments in Green buildings category Residential multifamily buildings Non-residential buildings Major renovations Energy efficiency in partial systems Green buildings: residential 15% better than BBR 25; Framework 7 Mar 2018 Framework 12 Jan 2016 non-residential 20% better than BBR 25 (previously 25% lower than BBR 21) 15% better than BBR 25 25% lower than BBR 21 Nominal requirement on energy use ~as before 20% better than BBR 25 25% lower than BBR 21 Energy efficiency in green buildings: Min. new 35% lower requirement energy Min. 30% lower energy use, or of min. 30% efficiency gains (previously use, or reaching 35% and BBR 21 reaching BBR 25 requirements. requirements.. 25%) Min. 25% lower energy Energy efficiency Min. 30% lower in municipal energy use operations: use clarification on min. 30% efficiency gains 2) Commitment to report along Nordic position paper guidelines 3) Clarification on fossil energy content (see next slide) 18

19 Fossil energy restrictions Kommuninvest does not approve investment projects that lead to a lock-in of fossil energy-based infrastructure. Peat is treated as a fossil energy source. Maximum share of fossil energy content in project, if waste is NOT INCLUDED in energy mix Maximum share of fossil energy content in project, if waste is INCLUDED in energy mix Maximum share of fossil energy content in public transport 10 percent 20 percent 20 percent 19

20 2nd opinion from Cicero (March 2018) Renewable energy Wind Solar Hydro Bioenergy and biogas Geothermal Excess heat Conversion from fossil to renewable Dark green Dark green Dark green Medium green Dark green Dark green Dark green Energy efficiency in energy systems Medium to Dark green Clean transportation Medium green Waste management Medium green Green buildings Medium green Water management Dark green Adaptation measures Dark green Environmental management Dark green Overall, Kommuninvest s Green Bond framework and environmental policies provide a progressive, clear and sound framework for climate friendly investments. The framework lists eligible categories of projects that are supportive of the objective of promoting a transition to low carbon and climate resilient growth and is supported by a strong governance structure. Kommuninvest puts strong emphasis on environmental competence in their selection of eligible loans... This welcomed governance element is of particular importance since the framework covers many eligible project categories, some with a broad scope. Center for International Climate and Environmental Research (Cicero), 27 March

21 Green buildings: impact report GWh of reduced energy use 86 projects - Residential buildings (33) - Non-residential buildings (44) - Other buildings (4) - Energy efficiency projects (5) SEK 9.8 bn in disbursements 49% of total Expected result: GWh of reduced and/or avoided energy use, - 3,693 tonnes of CO2 emissions annually (a fully loaded Volvo long-haul truck with trailer traveling 74 times around the earth) Project #123: Aspö Ekologi ecological residential district, Skövde. SEK 350m disbursed A comprehensive ecological approach has governed the whole construction process, with social diversity aspects an integrated part. Energy requirements are less than half of the requirements. Three environmental certifications. 21

22 Renewable energy: impact report TWh of renewable energy generation 39 projects - Bioenergy (3) - District heating (19) - Hydropower (3) - Solar energy (1) - Wind power (13) SEK 7.7 bn in disbursements 39% of total Expected result: TWh of annual renewable energy generation - 487,678 tonnes in annual CO2 emissions reduced / avoided (~334,000 cars removed from the road) #5 & #55: Sobacken, new wastewater treatment plant and bio-fuelled combined power and heating plant Borås municipality. SEK 1,750 m disbursed. 50 GWh in added renewable energy generation 16,119 tco2e emissions avoided per year. 22

23 Water management: impact report water and wastewater mgmt. projects - New waste water treatment facilities (2) - New freshwater supply (2) - Upgrading and/or expansion of current wastewater treatment facilities (8) SEK 1.6 bn in disbursements 8% of total Expected environmental impact: - reduced emissions of phosphorus, nitrogen and BOD; - modernising sludge treatment: - reducing energy consumption in wastewater treatment; - increased production of biogas. Project #135: Ängen wastewater treatment facility, Lidköping Municipality. SEK 250m disbursed New sewage treatment to ~61,000 p.e. Emissions of nitrogen, phosphorus and BOD to be reduced by 53 63%; yearly biogas production to amount to >565,000 Nm3; energy use per m3 of wastewater treated to be reduced by 18%. 23

24 All projects are located in Sweden Applicable legislation and guidelines EU Law The Swedish Environmental Code (Miljöbalken) Sweden s 16 environmental quality objectives: miljomal.se Applicable municipal/county council environmental policies OECD Guidelines for Multinational Enterprises For Kommuninvest sustainability perspective and indicators: kommuninvest.se/sustainability 24

25 Plan for Green Bonds Strategic Green Bonds issuance in SEK and USD - Ambition to build yield curves in both SEK and US - Support strategic objective of 50% funding in SEK Issuance volume determined by green lending - Funding post lending, total outstandings maximized to 75% of total green lending No duration matching - Funding to be shorter than economic life of Green loan projects Green lending and green bonds issuance important component in Kommuninvest s future growth 25

26 Fossil reduction vs fossil-free (1/2) View on Fossil energy fossil reduction vs fossil-free The overall aim of the Kommuninvest Green Bonds framework is to contribute to the transition to low-carbon and climate-resilient growth, through projects that address mitigation of climate change, adaptation to climate change or environmental management in other areas than climate change (the latter max 30% of volume). In its Second Opinion, Cicero points to the fact that some of Eligible projects may include fossil energy to a non-negligible extent (over 10-20%). This applies to the framework categories Renewable energy, Energy efficiency in energy systems and Public transportation and sustainable transportation. The framework has a broad scope, as it is aimed at supporting climate and environment initiatives across Sweden s local government sector, all over Sweden. The projects address sectors of society with great impact on CO 2 -emissions, but which are not totally CO 2 -free. We will not approve investment projects that lead to a lock-in of fossil energy-based infrastructure. However, we may approve projects with a component of fossil energy if the project enables the transition to a climate-neutral infrastructure and similar solutions, whilst reducing climate impact. Impact analysis and impact reporting is an absolute requirement for projects partly encompassing fossil energy to a non-negligible extent (over 10-20%). The Environmental Committee is responsible for assuring that any project that includes a fossil component to a non-negligible extent will have significant positive climate and/or environmental impacts. Our views on fossil with regards to the project categories listed above is outlined in this paper. A complete exclusion of fossil energy from any project is virtually impossible to achieve, since fossil energy is often embedded in components, building materials and energy production equipment, even in solar cells. The Swedish energy system a background Sweden s energy system uses a very low proportion of fossil fuels, especially in the production of electricity and district heating. The total share of renewables in the energy system, at over 50 percent, is the highest in the European Union. In addition, Sweden has a large proportion of nuclear power for electricity generation, at about 40 percent. Fossil energy is mainly used in the transport sector and for industrial processes. A particular Swedish feature is that half of the energy used for heating purposes is supplied by district heating. The expansion of district heating and its conversion from fossil fuels to biomass and waste is the main factor behind Sweden s reduced fossil CO 2 emissions by some 25 percent since Why we allow a small share of fossil energy in district heating (max. 10 %) In the district heating sector, a fossil energy component sometimes cannot be completely avoided. Fossil energy may be required to start up processes, to use for peak energy at times of extreme energy demand and for back-up purposes. District heating is a flexible energy system capable of extracting energy from various types of energy sources and waste. We only accept projects with positive climate impact, e.g. a reduced carbon footprint, and which uses a limited amount of fossil energy (max 10 percent). We favor using waste for energy extraction as a resource-efficient and more climate-positive solution than landfill and other permanent deposits. However, waste often includes fractions of plastics, which according to international standards is regarded as fossil energy. Therefore, fossil waste incineration will not be accepted as a major component of eligible projects. (In general, maximum 10 per cent fossil component). POSITION PAPER ON FOSSIL DATED 5 FEBRUARY

27 Fossil reduction vs fossil-free (2/2) We view peat as a non-renewable energy source. A possible exception is peat whose extraction can be shown to reduce methane leaking emissions from peat bogs. Such peat could be tolerated as climate positive. Kommuninvest also benefits from operating in a country where systems and regulations regarding waste sorting and smoke gas purification are highly developed. Why some energy efficiency projects may include fossil energy We support energy efficiency measures because they lead to a reduction in energy use, thereby contributing to a reduction in CO 2 emissions. The principal way for property owners to reduce climate impact is to make energy use more efficient. The focus of the projects will be on energy reduction, however the energy supply, which will generally not be a part of the project, may include a fossil energy component. Given the increasingly interconnected electricity system in the Nordic region and Europe 1, it is difficult for property owners to completely exclude fossil components in the energy mix. Property owners that are supplied with district heating also have limited opportunity to influence the energy mix. The share of renewables in the energy system is mainly a task for national and EU regulation. Why public transport and sustainable mobility projects may include fossil energy We support public transport-related projects in order to increase the use of such systems, thereby reducing car use and hence the use of fossil energy. However, in the support of a build-up of public transport infrastructure, for example, we generally cannot be certain that this infrastructure will only be used by transport vehicles that run on renewable energy. This usually is outside the scope of the project. Further, fuel mixtures for renewables often include minor fossil components, this generally is the case for both biodiesel, ethanol, bio-methane and electricity. The actual shares of renewables is often a question for national regulation and market. It is thus problematic to completely exclude fossil components. If vehicles are part of the application, they generally should be powered by renewable fuels. Fossil fuel buses (i.e. diesel and hybrid) can only be approved if the municipality/county council shows that the investment: reduces total Greenhouse Gas emissions by promoting public over private transportation more for the same cost than a solution based on green fuel-only buses; or includes a plan to use a substantial portion of green fuels (for example biodiesel) in these buses; and includes impact analysis and impact reporting. Given that few municipalities and regions operate their own bus fleets, such projects are expected to be limited in number. Impact analysis and reporting required The framework clearly specifies that a project that includes fossil energy to a non-negligible extent will only be approved if an impact analysis shows that there will be significant positive climate and/or environmental impact and impact reporting afterwards is required. The individual loan application should state why fossil components are part of the energy mix. The above will ensure a high environmental standard in execution. 1) The Swedish electricity mix is approximately 60 g CO 2 per kwh. This can be compared with about 100 g CO 2 per kwh for the Nordic electricity mix; 1000 g CO 2 per kwh for coal-generated electricity and nearly 400 g CO 2 per kwh for gas condensation, a common form of electricity generation in Europe. As electricity markets in the Nordic region and Europe become increasingly interconnected, it is not entirely clear how to assess the environmental impact. Furthermore, the share of renewable electricity in Sweden and Norway are regulated with green certificates rather than by individual buying of certified renewable electricity. 27

28 Contacts Christian Ragnartz Head of Debt Management +46 (0) Ulrika Gonzalez Hedqvist Senior Funding Officer +46 (0) Tobias Landström Deputy Head of Debt Management +46 (0) Marcus Waineby Senior Portfolio Manager +46 (0) Björn Bergstrand Head of Sustainability/Senior IR Manager +46 (0) Pelle Ekestubbe Senior Portfolio Manager +46 (0)

29 Kommuninvest Kommuninvest