KfW’s $1.5 billion green bond a success with U.S. investors; company touts bond benefits

By Lisa Kerner

Charlotte, N.C., Oct. 8 – KfW’s debut of its $1.5 billion green bond to the U.S. market on Tuesday was the largest U.S. green bond issuance to date, according to a company news release.

Bank of America Merrill Lynch, Citi and Morgan Stanley led the issue, which has a five-year maturity and pays an annual coupon of 1.75%.

Total demand was $2.5 billion, well in excess of the issuance volume, the company said.

As previously reported, KfW priced the bonds at 99.743 to yield mid-swaps minus 4 basis points. The offering was upsized from $1 billion and the notes are guaranteed by the Federal Republic of Germany.

Net proceeds will be used for environment and climate protection projects.

Green bond benefits

KfW said a unique feature of its “Green Bonds – made by KfW” is the impact measurement; the effect of investments in terms of greenhouse gas reduction is made transparent to investors.

Proceeds of the U.S. green bond are linked to KfW’s environment investment program, “Erneuerbare Energien” or “KfW Renewable Energies Programme – Standard.” The “positive and sustainable effects on the environment” of KfW’s financings under the program are certified by the independent, non-profit Center for Solar Energy and Hydrogen Research, Baden-Wuerttemberg (ZSW), according to the release.

The independent research center Cicero has positively evaluated KfW’s green bond approach.

To enhance transparency, KfW said it will publish the use of proceeds on a regular basis, with its first report on the company’s website expected for the second half of October.

According to KfW’s news release, results show that an investment of €1 million triggers yearly greenhouse gas reduction of 800 tons, on average.

“The high degree of transparency and the unprecedented quality standards of our green bonds have convinced U.S. experts,” said Guenther Braeunig, a member of KfW’s executive board and responsible for capital markets. “We will further develop our green bond concept into other markets and products.”

Investors react

TIAA-CREF Asset Management appreciates “KfW’s willingness to provide investors with its impact measurement certified by ZSW, a unique positive attribute in today’s green bond market,” said Stephen M. Liberatore, managing director at the New York-based fund manager.

“This is a good example for green bond issuance and will help support the development of this important market”, says Ashley Schulten, a director at New York-based investment firm BlackRock.

Participating investors, in addition to TIAA-CREF and BlackRock, include AP4, Barclays Treasury, CalSTRS, Calvert Investment Management, Inc., Inter-American Investment Corp., Morgan Stanley Wealth Management, Praxis Intermediate Income Fund and SSgA High Quality Green Bond Fund.

KfW, a German government-owned development bank, based in Frankfurt, issued an inaugural euro-denominated green bond in July.

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