It seems green bonds, sometimes referred to as climate bonds, are becoming ever so popular by the day with issuance tipped to reach record levels in 2019. However a French railway firm has notched industry trend setting way up the charts by launching the world’s first 100-year green bond.
Societe Nationale des Chemins de Fer Réseau (SNCF Réseau), France’s state-owned railway network management firm, which has already raised €2.8 billion ($3.10 billion) in green bonds in 2019 alone, confirmed Friday (August 23) that it has launched its 100-year product.
The near €100 million in book value raised would be used to finance green projects meeting its eligibility criteria for improvement, maintenance and “energy optimization” of railways. Some of the funds would also be allocated to sustainability components of new route and track extensions, the company said.
In total, SNCF Réseau has so far raised €5.4 billion in green bonds, nearly doubling the figure this year. Following the latest investment round in its green bond program, the French company now ranks seventh in the global green bond issuance market.
Green bonds are typically asset-linked and backed by the issuer’s balance sheet, earmarked to be used for climate and environmental projects. According to rating agency Moody’s, issuers brought $66.6 billion of green bonds to market globally the second quarter of 2019, propelling first-half issuance to a record $117 billion up 47% on an annualized basis compared to the first six months of 2018, and compared against the 11% year-over-year growth for the same six month periods of 2017 and 2018.
However, there has been criticism over the criteria for green bonds. On paper such bonds allow firms to raise finance for low carbon and climate-friendly projects thereby offering a promising solution to those looking to go green via climate initiatives.
But there have been instances of companies using the proceeds of green bond issuance to pay of other debts. Some issuers offer green bonds targeting specific projects, but often fail to outline a clear, long-term strategic environmental goal.
For its part, SNCF Réseau’s 100-year bond and previous issuance drives strictly comply with the European Commission’s green bond standard. The French railway network operator now takes over the title of the world’s longest maturing green bond from Energias de Portugal (EDP) and Energie Baden-Wuerttemberg (EnBW) whose bond had a maturity of 60 years.
I am a UK-based oil & gas sector analyst and business news editor/writer with over 20 years of experience in the financial and trade press. I have worked on all major media platforms – print, newswire, web and broadcast. At various points in my career, I have been an OPEC, Bank of England and UK Office for National Statistics correspondent. Over the years, I have provided wide-ranging oil & gas sector commentary, including pricing, supply scenarios, E&P infrastructure, corporations’ financials and exploration data. I am a lively commentator on ‘crude’ matters for publications and broadcasting outlets including CNBC Europe, BBC Radio, Asian and Middle Eastern networks, via my own website, Forbes and various other publications. My oil market commentary has a partial supply-side bias based on a belief that the risk premium is often given gratuitous, somewhat convenient, prominence by cheeky souls who handle quite a few paper barrels but have probably never been to a tanker terminal or the receiving end of a pipeline. Yet having done both, I pragmatically accept paper barrels [or should we say ‘e-barrels’] are not going anywhere, anytime soon!
10 years ago, the World Bank Treasury issued the first green bond then laid out the first blueprint for sustainable fixed income investing, transforming development finance and sparking a sustainability revolution in the capital markets. Learn about the revolution.
SoftBank stunned the venture capital world with its launch of the $100 billion Vision Fund in 2017 and its wide-ranging and aggressive investments. Now billionaire Masayoshi Son has announced an even larger fund with $108 billion to invest in artificial intelligence companies.
Announced on Thursday, the “SoftBank Vision Fund 2” will be the biggest tech fund in the world if it comes to fruition. “The objective of the Fund is to facilitate the continued acceleration of the AI revolution through investment in market-leading, tech-enabled growth companies,” SoftBank Group wrote in a filing with the Tokyo Stock Exchange.
SoftBank has upped its own stake in the new fund to $38 billion from the $25 billion in the original fund and has tapped leading tech companies like Apple, Microsoft and Foxconn, along with Japanese investment investment banks and Kazakhstan’s sovereign wealth fund.
One noticeable omission from the second fund is Saudi Arabia’s sovereign wealth fund, which pumped $45 billion into the first Vision Fund. SoftBank has faced criticism over its ties with Saudi Arabia and Crown Prince Mohammad Bin Salman following the grisly murder of journalist Jamal Khashoggi in the Saudi Consulate in Istanbul.
However, SoftBank said discussions are ongoing with additional participants, so it’s possible Saudi Arabia will still participate in the second fund, while the total money raised may top $108 billion.
SoftBank used the first fund to make aggressive billion dollar investments into an eclectic range of technology companies around the world leading to some questioning the rational of the legendary investor and SoftBank founder Masayoshi Son. Uber, DoorDash, and WeWork have all been backed by the fund, European startups Improbable in the U.K. and travel booking website GetYourGuide in Germany.
The SoftBank Vision Fund, run out of an office in London’s exclusive Mayfair neighbourhood, is led by Son and Rajeev Misra, a banker who previously worked at UBS, Deutsche Bank and Merrill Lynch.
I’m a Staff Writer covering tech in Europe. Previously, I was a News Editor for Business Insider Australia, and prior to that I was a Senior Technology Reporter for Business Insider UK. My writing has also appeared in The Financial Times, The Telegraph, The Guardian, Wired, The Independent, and elsewhere. I have also appeared on the BBC, Sky News, Al Jazeera, Channel 5, Reuters TV, and spoken on Russia Today and Shares Radio. In 2015, I was shortlisted for Technology Journalist of the Year by the UK Tech Awards and in 2016 I was nominated as one of the 30 young journalists to watch by MHP Communications.
Storm clouds behind the exterior of the Federal Reserve building in Washington, DC
In a disappointing decision, the Federal Reserve Board announced yesterday that effective this year, it will limit its use of the “qualitative objection” in Dodd-Frank’s Comprehensive Capital Analysis and Review (CCAR). Under Dodd-Frank’s Title I, banks that are designated as systemically important are required banks to design a model using stress scenarios from the Federal Reserve. In order to pass the stress test, banks need to demonstrate that they would be able to meet Basel III capital and leverage requirements even in a period of stress. It is in the qualitative portion of CCAR, that the Federal Reserve can identify and communicate to the market if a bank is having problems with its internal controls, model risk management, information technology, risk data aggregation, and whether a bank has the ability to identify, measure, control, and monitor credit, market, liquidity and operational risks even during periods of stress. Easing this requirement, in combination with all the changes to Dodd-Frank that have been taking place since last year, is dangerous to investors, not to mention taxpayers, especially so late in the credit cycle.
Parts of the test that each firm is subject to this year in addition to the hypothetical scenario.
*All firms subject to the qualitative objection, except TD Group, will have their fourth year in the 2020 cycle. TD Group’s fourth year will be the 2019 cycle.
According to the Federal Reserve’s press release “The changes eliminate the qualitative objection for most firms due to the improvements in capital planning made by the largest firms.” Yes, there have been improvements in capital planning precisely, because there were consequences to banks which failed the qualitative portion of CCAR. Banks were prohibited from making capital distributions until they could rectify the problems the Federal Reserve found in the CCAR exercise. This decision essentially defangs the CCAR qualitative review of banks’ capital planning process.
“It is absolutely reckless of the Fed to relinquish its regulatory authority in such a manner, rather than retain the option of qualitative oversight, which has turned up red flags in the past,” said Nomi Prins former international investment banker. “We are after all, talking about what the banks deem a reporting burden versus necessary oversight that could detect signs of a coming credit or other form of banking related crisis from a capital or internal risk management perspective. Why take that risk on behalf of the rest of our country or the world?”
In writing about the Federal Reserve’s decision, the Wall Street Journal wrote that “Regulators dialed back a practice of publicly shaming the nation’s biggest banks through “stress test” exams, taking one of the biggest steps yet to ease scrutiny put in place after the 2008 crisis.” It is not public shaming. It is called regulators doing their job, that is, providing transparency to markets about what challenges banks may be having. Without transparency, the bank share and bond investors cannot discipline banks.
Just last month, the Federal Reserve Board announced that it would be “providing relief to less-complex firms from stress testing requirements and CCAR by effectively moving the firms to an extended stress test cycle for this year. The relief applies to firms generally with total consolidated assets between $100 billion and $250 billion.”
Investors in bank bonds, especially, should be concerned about recent easing of bank regulations. Immediately after the Federal Reserve decision was announced yesterday, Christopher Wolfe, Head of North American Banks and Managing Director at Fitch Ratings stated that “Taken together, these regulatory announcements raising the bar for systemic risk designation and relaxed standard for qualitative objection on the CCAR stress test reinforce our view that the regulatory environment is easing, which is a negative for bank creditors.” Fitch Rating analysts have written several reports about the easing bank regulatory environment being credit negative for investors in bank bonds and to counterparties of banks in a wide array of financial transactions.
Also, a month ago, the Federal Reserve announced that it will give more information to banks about how it uses banks’ data in its model to determine whether banks are adequately capitalized in a period of stress. In commenting on the Federal Recent decisions, Better Markets President and CEO Dennis Kelleher stated that “Stress tests and their fulsome disclosure have been one of the key mechanisms used to restore trust in those banks and regulators. By providing more transparency to the banks in response to their complaints while reducing the transparency to the public risks snatching defeat from the jaws of victory in the Fed’s stress test regime.”
Center for American Progress
Gregg Gelznis, Policy Analyst at the Center for American Progress also expressed his concern about the Federal Reserve’s recent changes to the CCAR stress tests. “While Federal Reserve Chairman Jay Powell and Vice Chairman for Supervision Randal Quarles have spoken at length about the need for increased stress testing transparency, this transparency only cuts in one direction.” He elaborated that the Federal Reserve’s decision “benefits Wall Street at the expense of the public. The Fed has advanced rules that would provide banks with more information on the stress testing scenarios and models. At the same time, they have now made the stress testing regime less transparent for the public by removing the qualitative objection—instead evaluating capital planning controls and risk management privately in the supervisory process.”