Field in France
5 January 2017

Launch of the process for issuing the first sovereign green bond

The approach France has adopted for issuing the first sovereign green bond, presented on Tuesday of this week, logically follows on from the Paris Agreement on the climate and the Energy Transition for Green Growth Act. Its aim is twofold: finance policies bearing on the climate and environment in an innovative way while cementing the Paris marketplace's lead in green finance.
 
France fully intends to continue spearheading efforts to protect the environment, in line with the 2015 Paris Agreement on the climate and the 2015 Act on the Energy Transition for Green Growth.
 
As such, following the guidelines set by the President of the Republic at the fourth environmental conference last April, Ségolène Royal and Michel Sapin outlined France's first green bond (green fungible Treasury bonds/OATs) on 3 January. Ms Royal is hopeful that "this initiative (taken by a State) will set a global ripple effect in motion, change the scale of the amounts assigned to green finance and enable us to take joint action for the sake of the planet's protection, thereby safeguarding the mindset reflected during the Paris Agreement".
 
La Camargue
What is a green bond?
A green bond is a bond for which the funds are devoted to one project (or a series of projects) with environmental benefits. What distinguishes it from a conventional bond is the specific information it clearly states about the investments it finances and their green nature, whilst still entailing exactly the same financial risk for investors.

Specifics of France's sovereign green bond

France is working towards several objectives through this bond. These include:
 
  • Fostering the development of the green bonds market so that it reaches the adequate critical size for encouraging operators to invest more in sustainable development, and in the fight against climate change in particular.
 
  • Helping to define the best framework for this market, by coming up with an innovative environmental assessment approach.
 
  • Cementing the Paris marketplace's lead in terms of green finance, by undertaking a transparent, exemplary approach which companies and other French public operators feel confident about climbing aboard. The Paris marketplace has long-standing experience in socially responsible investment (SRI) and the more systematic incorporation of environmental, social and governance (ESG) criteria.
 
In accordance with the commitments made at the 2015 Paris Climate Change Conference and by Article 173 of the Energy Transition for Green Growth Act, France's green bond will thus target expenditure of the State budget and Investments for the Future Programme (PIA) across four areas: the fight against climate change, the fight against pollution, protection of biodiversity and adaptation to climate change.
 
Around €10 billion worth of eligible green expenditure has been identified within the State budget and PIA expenses. The sectors concerned include:
 
  • State aid for energy efficiency
  • clean transport, such as solar roads
  • research on renewable energy sources, such as marine current turbines
  • protection of biodiversity through nature parks or marine protected areas.
 

An effective and innovative approach

The approach adopted for France's green OAT has been approved by Vigeo-Eiris – an independent international ESG services and research agency. It draws inspiration from the very best market practices, not least those developed by the Green Bond Principles (set in 2014 and updated at regular intervals with coordination by the International Capital Markets Association/ICMA) and the official TEEC (energy and ecological transition for the climate) certification process.
 
It also seeks to be innovative in terms of reporting on the climate: France will be the first ever issuer of a green bond to report on the environmental impact of expenditure funded by this operation. For that, a Green Bond Assessment Board, on which world-esteemed independent experts will sit, will be tasked with assessing the environmental performance of France's eligible green expenditure.
 
The process for appointing members to this board will be determined early this year. The operation will be presented to investors by Agence France Trésor, with teams from the Ministry of the Economy and Finance and Ministry of the Environment, Energy and Marine Affairs, and rolled out over the coming weeks – subject to the market conditions being favourable.
 
Michel Sapin
"By innovating not only in financial terms of managing State debt, but also in terms of market standards, by introducing the idea of an independent Board tasked with having the ultimate say regarding the quality of the contribution that the selected expenditure makes to the transition, France hopes to spark greater interest in green bonds in Europe and the world at large, and to nurture a new, greener and even more environmentally-minded generation."
Michel Sapin
3 January 2017