The UK government made history by issuing the world’s largest-ever sovereign green bond, with its £10bn 12 year Green Gilt, a sustainable finance innovation designed to accelerate the economy’s transition to net-zero. BNP Paribas was joint bookrunner on the transaction.
The deal was ten times over-subscribed. Her Majesty’s Treasury’s decision to issue a green bond of this magnitude aligns to UK government’s Ten Point Plan for a Green Industrial Revolution which strives to protect the environment, boost green jobs and accelerate the economy’s path to reach net-zero by 2050.
This inaugural green gilt demonstrates the momentum in finance to address critical climate and biodiversity challenges on the road to COP26.Anne Marie Verstraeten, BNP Paribas UK Country Head
Projects to progress net-zero
The government’s ambitious green financing framework is the basis for eligible use of proceeds tackling several transition areas, directing the Green Gilt investment towards:
- Clean Transportation – includes low and zero emission mobility and research and development for low/zero emission transportation technologies. The UK has also committed to ending the sale of new petrol and diesel cars and vans in 2030
- Renewable Energy – Support development of renewable energy generation including wind, solar, hydrogen, alongside heat reuse technology, energy storage and research & development for commercial viability of clean tech. Example expenditures include the Net Zero Innovation Portfolio; a £1 billion+ R&D portfolio providing funding for low carbon technologies and systems in power, buildings and industry.
- Energy Efficiency – Energy efficiency programmes for the commercial, public and industrial sectors and could include the Public Sector Decarbonisation Scheme which provides grants to fund heat decarbonisation and energy efficiency measures.
- Pollution Prevention and Control – Reduction of air emissions and greenhouse gas control, waste prevention and reduction. This could include Carbon Capture, Usage and Storage (CCUS) infrastructure.
- Living and Natural Resources – Protection and enhancement of terrestrial and marine biodiversity, ecosystems and natural capital and sustainable land use and protection. Could include projects such as The Nature for Climate Fund focussed on nature-based climate solutions such as tree planting and peatland restoration in England.
- Climate Change Adaptation – Flood protection, resilience and other risk mitigation programmes, plus data driven climate-monitoring solutions.
The UK will report on the environmental and social co-benefits – a first for any sovereign green bond – of the projected use of proceeds. The UK government also made available a Pre-Issuance Impact Report by the Carbon Trust on the UK’s Green Financing Programme, and is an extra layer of external review in addition to the Second Party Opinion provided by Vigeo Eiris on the Framework.
In terms of the evolution of sustainable finance, the UK is also the first sovereign whose programme allows for the issuance of retail green savings bonds.
Scaling up economy wide transition through finance
The UK government’s new Green Gilt highlights the increasingly important role finance is playing in transitioning the UK economy towards net zero. On the road to COP26 taking place during November in Glasgow in the UK, there is a mass mobilisation of the industry to support corporates and investors in accelerating their sustainability transformation.
The signalling effect of this landmark green bond ahead of COP26 on sustainable capital markets in the UK is significant, and supporting our clients across government, corporates and investors to scale up the race to net zero is a key driver of our business.Frederic Zorzi, Global Head of Primary Market, BNP Paribas
In the past year, the development of sustainability-linked finance was a notable addition to the UK market, which also saw sustainability features embedded in a wider variety of financing instruments such as export finance, as well as issuance from a wider spectrum of sectors.
Ensuring a sector wide transition to net zero is fundamental in tackling climate change. Investing in transition technologies and supporting innovation is an important compass across the finance industry, and will be a key lever across the whole economy.Séverine Mateo, Head of Energy, Resources & Infrastructure, BNP Paribas
UK Corporates accelerate their transition through finance
BNP Paribas teams have been at the forefront of this movement in the UK across capital markets and financing instruments.
Tesco – In Dec 2020, BNP Paribas acted as sole Sustainability Coordinator on a £2.5bn RCF linking to UK retailer Tesco’s targets on scope 1 and 2 green house gas (GHG) emissions, percentage of renewable energy sourced/produced and on food waste redistribution. In Jan 2021, the Bank then acted as joint sustainability structuring advisor & joint bookrunner on Tesco’s €750mn 8.5-year Sustainability Linked Bond (SLB) in which the coupon is tied to Tesco’s scope 1 and 2 GHG emissions targets.
MTVH – In December 2020, BNP Paribas was sole arranger and sustainability coordinator on a £50mn sustainability-linked revolving credit facility with Metropolitan Thames Valley (MTVH). The three-year facility is the first Risk Free Rate (RFR) SLL in the social housing sector. Its margin is tied to MTVH’s environmental targets on reducing GHG emissions linked to energy consumption from its offices, transport, and its residential portfolio.
Associated British Ports – BNP Paribas supported the first ESG SONIA swap repack in May 2021. The 30-year transaction was the first SONIA-linked interest rate swap institutional repack and the first institutional repack transaction to have a sustainability-linked KPI whereby a discount is offered to ABP on its hedging rate, provided it meets Scope 1 and Scope 2 emissions reduction KPIs by 2030. This builds on a 36% reduction achieved in absolute GHG emissions since 2014.
Coats – In April 2021, Coats, the world’s leading industrial thread company, signed a $360m ESG-linked bank refinancing with BNP Paribas acting as joint sustainability and documentation coordinator. The three-year facility (with the ability for two one-year extensions) embeds ESG components tied to reduction in energy intensity, employee engagement as part of the Great Place To Work™ certification scheme and the transition to thread made from recycled raw materials.
Wood Plc – In September 2021, Wood became the first company to receive the UK’s first Transition Export Development Guarantee facility, a transition load backed by UK Export Finance (UKEF). BNP Paribas acted as Joint Global Coordinator, Bookrunner, Mandated Lead Arranger on the Transition EDG which offers a new solution to support companies in their transition to net-zero and drives investment towards opportunities linked to clean energy, hydrogen and decarbonisation.
On energy transition, BNP Paribas teams have been instrumental in having progressive and constructive dialogues across the power generation and utilities sector. The Bank is a founding member of the Net Zero Banking Alliance (NZBA) and other leading transition coalitions, and engagement with corporates has included a specific focus on supporting their net zero strategy. This includes:
Lightsource bp – In order to drive investment towards renewables, in September 2021, BNP Paribas supported Lightsource bp in securing a new $1.8 billion credit facility that will help fuel its global growth strategy of developing 25GW of solar by 2025, and also deliver on energy transition towards BP’s 2050 net zero target.
Cadent – Cadent issued the UK’s first ever transition bond in March 2020. The €500mn 12-year bond was 8.5 times oversubscribed highlighting strong investor appetite to support the energy transition in the UK. BNP Paribas was sole transition framework structuring advisor.