Irish Water and BusConnects tap into green bonds funding boom

 

Irish Water is the biggest single beneficiary to-date of the cheap funding sourced on the bond market from environmentally committed investors, drawing €679m a year of the fund in 2020 and 2019. 

Other big spending areas benefiting from Ireland’s green bond programme include public transport - with rail infrastructure getting €312m last year and Dublin’s BusConnects scheme €104m last year among other big transport investments, according to a breakdown of fund allocations prepared by the National Treasury Management Agency (NTMA).

The allocation breakdown shows the biggest share of green funding going to spending on areas that would require investment whether or not green funds were available, like transport and water. 

Purely environmental initiatives like peatlands restoration and management (€7m) and landfill remediation work (€12m) also benefitted from the funding, but tend to be on a much smaller scale. 

Green bonds are debt raised on the markets, with much the same financial terms and conditions as conventional debt but the funds must be used for environmentally sustainable purposes. Big investment managers increasingly have targets to allocate significant proportions of the funds they control only to borrowers who can commit to use the money in an environmentally sustainable way. The scale of demand for green bonds and relative shortage of eligible borrowers means debt issuers who can show their green credentials have access to a new source of cheap debt. 

The NTMA has raised €6.1bn to date by issuing green bonds, an initial €3bn of debt raised in 2018 that is due to be repaid in 2031 that has been topped up with so called ‘taps’ of €1.1bn and €2bn each.

In 2018 the yield - or return for investors - on the bonds was 1.399pc a year and by 2020 the NTMA was able to raise more than €1bn of green bonds at a so called negative interest rate meaning investors are prepared to get back slightly less than they lend when the debt matures  

In Ireland’s case the money raised by the NTMA is not ring fenced for environmental projects, it is paid into the government’s central fund, but that the money is matched against spending on eligible projects - such as lower emission buses, tax breaks for electric cars, water conserving pipe infrastructure and even the running of agencies including the Sustainable Energy Authority of Ireland. 

The 2020 allocation report shows €2.389bn of eligible green projects were funded last year , an increase of over 20pc relative to 2019. That left a just under €200m ‘balance’ of unallocated and available funding coming into 2021, although at least some investment over the past three years should begin to deliver a financial return that could be recycled into new schemes as well. 

The NTMA is by far Ireland’s biggest issuer of green bonds, but the private sector has also tapped the market. Earlier this year Ardagh Group, Paul Coulson’s global packaging empire raised $2.8bn (€2.3bn) by issuing green bonds to refinance debt linked to its recyclable drink cans arms. AIB and Bank of Ireland have issued green bonds they’ve used to fund mortgages for buyers of higher energy rated homes.

Source – The Irish Independent