September 6, 2018 / 4:52 PM / 15 days ago

Development bank EIB sells first "sustainability" bond

LONDON, Sept 6 (Reuters) - The European Investment Bank sold its first “sustainability awareness bond” on Thursday, the latest in a series of bond sales by it and other multilateral development banks to raise money for good causes.

Proceeds from the 500 million euro ($580.80 million) bond will be put towards water quality and infrastructure projects in countries as diverse as Burkina Faso and Germany.

Other areas such as education, healthcare and even gender balance will be targeted in future, EIB officials say.

Bertrand de Mazierez, the EIB’s director general responsible for finance, said Thursday’s issue was a test of investor appetite for the new sustainability awareness bonds, or SABs.

The EIB wants to ensure such sales will not cannibalise demand for other Socially Responsible Investment (SRI) bonds, such as its “climate awareness bonds” — known as green bonds — of which it sells roughly 4 billion euros a year.

“These are two types of bonds that we think can live together without killing each other,” he said.

The SABs are part of a push by global governments, under the umbrella of the United Nations’ 17 Sustainable Development Goals, to end poverty, protect the planet and ensure prosperity by 2030.

EIB chief Werner Hoyer and the UN’s Secretary General António Guterres sketched out the SAB idea last year and the structure was put together by one of the EIB’s bankers who pioneered its first green bond over a decade ago.

EVOLUTION

The SRI bond market has started to evolve far beyond its “green” roots over the last 12 months.

The World Bank, which issues $50-$60 billion of bonds annually, has placed a series of sustainable development bonds to raise awareness of specific issues, most recently a 1 billion Swedish crown ($110 million) water and ocean bond.

It follows other similar bonds issued this year focused on raising awareness for women and girls’ empowerment, as well as the health and nutrition of women, children and adolescents.

French bank BNP Paribas estimates that $6.3 billion worth of “social” bonds have been sold this year. That compares to $9.2 billion for the whole of 2017 but also the much larger $77 billion of green bonds that have been sold this year.

The EIB’s new SAB will mature in 7-1/2 years by which time the bank expects to be issuing them regularly, although probably not quite at the same rate as green bonds.

The level of improvement and impact the money is deemed to produce will be key, as it is something that green bond sellers and investors have long struggled to define and measure.

For water-focused projects the EIB has developed benchmarks like how many new people benefit from safe drinking water, or how much waste-water gets treated, as money raised by the bonds is spent.

Around 10 percent of its spending outside the EU, from the Middle East and Africa to Latin America and Asia although it expects that proportion to rise to 20-30 percent for the funds raised through SABs.

“We will ensure that these projects we are investing in are meaningful and will have a meaningful impact,” de Mazierez said.

$1 = 0.8609 euros $1 = 9.1070 Swedish crowns Additional reporting by Virginia Furness; Editing by Catherine Evans

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