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Due to the rise of Green Bonds, it is important to consider how they fit into any investment portfolio. However, it is also crucial to consider whether the underlying issuer has a true responsible purpose for their use, or whether it is an attempt to "greenwash" an underlying issue. Here we look at 2 investment examples that pass the screening test with flying colours.

Green Bonds: How do they guide investment?

David Katimbo-Mugwanya David Katimbo-Mugwanya Senior Fund Manager
Edentree Insight reports

The Rise of Social and Sustainable Bonds

David Katimbo-Mugwanya


Senior Fund Manager
30 Dec 2020

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Chapter 3

Green Bonds: How do they guide investment?

While the issuances seen in the previous chapter failed to meet the stringent EdenTree Responsible and Sustainable Investment criteria, we have also identified a number of green bonds that passed with flying colours.

Scottish and Southern Electric Transmission (SSE)

In 2019, Scottish and Southern Electric Transmission (SSE) issued a GBP350 million green bond, with a coupon of 2.25% maturing in 2035, under its Scottish Hydro Electric subsidiary. The FTSE 100-listed company is the UK’s largest generator of renewable energy, with further interests in electricity transmission following the sale of its supply unit in 2020. SSE is committed to playing a key role in the UK’s transition to low carbon and is using bond proceeds to develop its transmission network infrastructure and support the electrification of transport by constructing electronic vehicle charging points. The company also finances, and or refinances, windfarms – SSE co-owns the Beatrice offshore windfarm, the largest in Scotland, and is involved in the Seagreen and Dogger Bank projects.

As part of its company-wide strategic objectives, the group has set four 2030 business goals which align with the UN’s Sustainable Development Goals:

  • Climate Action: Reduce by 50% the carbon intensity of electricity generated by 2030, with a 2018 baseline to around 150gCO2e/kWh.
  • Affordable and Clean Energy: Develop and build enough energy to treble its renewable output to 30 TWh per annum.
  • Industry, Innovation and Infrastructure: Build electricity network flexibility and infrastructure to help accommodate 10 million electric vehicles in the UK by 2030.
  • Decent Work and Economic Growth: Be the leading company in the UK and Ireland championing Fair Tax and the real Living Wage.

Chapter-3_SSE-Goals

Bazalgette Finance plc (Tideway)

Bazalgette Finance plc (Tideway) is a company that was set up with the sole purpose of constructing the Thames Tideway Tunnel, also known as London’s “super-sewer”. Tideway issued a GBP250 million green bond with a coupon of 2.375% that matures in 2027 and has since issued five other green bonds taking the total amount issued to £775 million.

Built in the 1860s to service a maximum population of 4 million people, London’s sewer system is frequently overwhelmed particularly by rainwater following heavy downpours. Consequently, the river Thames suffers sewage overflows at a rate of one or more per week.

The Thames Tideway Tunnel is a 25km tunnel stretching from Acton to Lee and will be 7.2m wide and 66m deep, with a projected design life of 120 years. When complete, the new sewer will all but eliminate these Combined Sewer Overflow (CSO) discharges, reducing their rate of occurrence by 90% and leave behind a cleaner river that should enable the UK to meet the European environmental standards of which it is currently in breach. Other benefits include a new foreshore and the regeneration of fish species.

Aside from constructing the tunnel, Tideway also runs an education programme encouraging students to take up STEM subjects in the 14 London boroughs in which it operates. Tideway has also partnered with Construction Youth Trust in London to extend support to approximately 7,000 young people seeking to reach their full career potential in the construction industry. In addition, the company has a target of gender parity by the end of the construction process – at the end of 2019 34% of its staff were female.

Chapter-3_Bazalgette-Finance-Goals

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