Insurers show strong interest in green bonds

Channels: SAA/ALM

Companies: International Bank for Reconstruction and Development (World Bank), Deutsche Bank, Morgan Stanley, SEB, Zurich Insurance Group

People: Michael Leinwand, Doris Herrera-Pol, Andrew Salvoni

Over a quarter of the investors subscribing for the $600m 10-year fixed-rate global green bond, issued by the International Bank for Reconstruction and Development (World Bank) last week, were pension and insurance companies. These companies bought 26% of the bonds, with 43% of the bonds being placed with asset managers and 31% with bank treasuries and corporates, according to the bank.

The issue is the bank's largest US dollar green bond and also its longest-dated one in dollars. The bond was issued at 99.108% with a coupon of 2.125%, giving a yield of 2.225%. Deutsche Bank, Morgan Stanley and SEB were the joint-lead managers for this transaction.

The jumbo issue capped a busy week for the bank which a couple of days earlier had issued a €30m, 30-year fixed-rate green bond in response to demand from Zurich Insurance Group. The bond was issued at par with a coupon of 1.0325%.

"As an insurance company we frequently invest into maturities of 30 years and longer," noted Michael Leinwand, CIO Zurich Insurance Group, Germany. "Practically, this means investing for the next generation. What better way could we find than working with the World Bank on a customised solution to both outperform our liabilities and tackle climate change?"

The bank said its green bonds offer an opportunity for investors to support environmental solutions through a high-grade fixed-income investment, pointing out that its green bonds benefit from the triple-A credit strength of the World Bank and provide comparable returns to other World Bank bonds.

Green bonds support the financing of projects in the bank's member countries that meet specific criteria for low-carbon development and resilient investments. The types of eligible projects include alternative energy installations, funding for new technologies that reduce greenhouse gas emissions, reforestation, watershed management and flood protection that build climate resilience.

"Zurich is playing an important role as an institutional investor both promoting and supporting the development of the green bond market," observed Doris Herrera-Pol, director and global head of capital markets at the World Bank. "We are delighted that we were able to provide a customised solution that meets their investment objectives as well as supporting projects that will help our clients address the challenges of climate change."

Andrew Salvoni, head of green bond syndicate at Morgan Stanley, said the issue "is now the longest- dated fixed-rate euro green bond outstanding and the second-longest-dated green bond issued so far."

In July last year, Zurich announced it was doubling its commitment to green bonds -- to $2bn (IAR, 15 July 2014, Zurich to double investment in green bonds).