Snam’s Climate Action Bonds: feeding the paranoia of the righteous

I’ve seen some of the snarly chatter around Snam’s EUR500m six-year green bonds … OK fine … climate action bonds. As a piece of financing, it looked flawless: pricing at fair value at MS+103bp, the bottom of guidance and well through IPTs of MS+125bp-130bp on a final book size of EUR 2.4bn.

But why on earth didn’t the issuer tell it how it is and call it a green bond? After all, second-opinion provider DNV GL said the bonds meet the Green Bond Principles as well as its green bond eligibility assessment methodology – which it had to pointlessly faff about with to create … guess what ... a climate action bond eligibility assessment protocol just for Snam because Snam needlessly opted to call its bonds Climate Action Bonds, as a derivative of green bonds along with a highly nuanced definition of the difference.

Proceeds will be used to fund improvements in the environmental impact of its core activities as well as green investments in biomethane and energy efficiency. So what? Snam should be commended for co-mingling use of proceeds as part of an overall plan to cut its emissions. This is just what the market needs, as I’ve been arguing ever since Repsol took that bold step to sell green bonds in 2017.

The green bond market desperately needs companies in the oil and gas and related sectors to fund the greening of their activities in the green bond market if this market is to serve its true purpose. And why should that have to be 100% in renewables?

Just as Repsol’s bonds were in my view wrongly dismissed by Climate Bonds Initiative because proceeds went towards refinery efficiencies even though they will reduce carbon emissions, Snam is only feeding the paranoia of the righteous in bottling out of calling its bonds green, especially as the company can stand behind its target of cutting methane emissions by 25% by 2025.

It’s perfectly reasonable for the green bond market to have a broad array of eligible issuers funding a broad array of projects. Just as it’s perfectly reasonable to have a broad array of investors plying their trade in this market. Some will set the bar very high in terms of what they consider green; others will have more porous green filters. That’s fine. At the end of the day, it’s about choice. Snam’s Climate Action Bonds shouldn’t be allowed to become a reprise of the Repsol saga.

See here my comment on Repsol for Environmental Finance – Time the green bond market grew up. See also my video interview with Susana Meseguer, Repsol’s director of financing, at the 50 Shades of Green: Bringing Brown-Economy Transition Financing to the Capital Market seminar hosted in 2018 by Events Radar, an association of KM Capital Markets and Bond Radar.