Stockholm (NordSIP) – Following the announcement of what appears to be the first-ever EU taxonomy and the European Green Bond Standard-compliant green bond framework at the start of the week, Diös Fastigheter closed the second week of November by becoming the first issuer of such green bonds in the world.
Founded in 2005, Diös Fastigheter is a Swedish real estate company listed on Nasdaq OMX Stockholm, Mid Cap. It owns and develops both commercial and residential properties, with a property value of SEK 26.6 billion from a portfolio of 336 properties and a lettable area of 1,490,000 sq m. Diös recently updated its green financing framework to be in line with the EU Commission’s latest draft regulation on European green bonds.
The green bond is a floating rate note that pay 160 basis points (bps) over the 3-month Stibor. Handelsbanken has acted as Green Structuring Advisor to Diös in the development of the green financing framework and as a dealer on this latest transaction. The securities will be listed on the Nasdaq Sustainable Bond exchange.
“We consider that climate change is the most important challenge facing society today and the most urgent of the UN’s global sustainable development goals. The climate crisis is not just about changing weather conditions, it is also about economic crises linked to arid areas, food production, rising sea levels, refugees, among others. Climate change will affect local economic and social realities in our cities, as well as have broader effects nationally and globally. It is of the utmost importance that Diös’ activities contribute to a more sustainable future,” says Rolf Larsson, CFO.
Prepared for the Green Bond Standard
Diös’ green financing framework is adapted to the proposed requirements and enables issues of European Green Bonds, European Green Commercial Papers and European Green Loans when an external review by an accredited reviewer is available, as required by the European Green Bond Standard. Our ultimate ambition is that bonds issued under this framework before such an external review is possible are reclassified retroactively.
The criteria for which assets and initiatives can be financed within the framework follow the EU taxonomy in the areas ‘Construction and Real Estate activities’, ‘Energy’ and ‘Transport’ as well as the objectives for ‘Climate Mitigation’ and ‘Climate Adaptation’. In addition to these criteria, additional, but voluntary, requirements that go beyond what the EU taxonomy requires have been added to the framework regarding environmental certification and energy performance for new production and energy performance for existing buildings.
CICERO provided a second opinion on Diös’ framework and awarded it a “Medium Green” as an overall rating. The review of governance and reporting has received the highest rating – “Excellent”.
The European Green Bond Standard requires a Factsheet (a condensed green bond framework), Taxonomy-aligned assets and quite a few previously voluntary ‘best practices’ now mandatory, such as third party verification of the issuers allocation reporting. It also introduces the ‘Taxonomy-alignment plan’ and clarifies how CAPEX and OPEX are allowed to be included in the use of proceeds. Furthermore, the standard requires an external review by an accredited verifier, the mechanism for which is not in place yet.
The regulatory proposal accepts post-issuance verification, meaning that with a few adjustments to the issuer’s prospectus, Green Bonds that could likely be assessed as European Green Bonds in the future can be issued already today, albeit requiring a new external review at a future date and potentially changes to the terms to ensure regulatory compliance.
“While the use of the European Green Bond Standard and EU Taxonomy is voluntary for thematic bond issuance, taxonomy related disclosures for investors, financial institutions and large companies is not. Given that Taxonomy-alignment is a critical and work-intensive part of issuing a European Green Bond, there will be a strong momentum building up in favour of European Green Bond structures in the next 18 months as entity-level taxonomy disclosures ramp up,” said Tobias Lindbergh, Head of Sustainable Finance at Handelsbanken Debt Capital Markets.
Not Yet a European Green Bond
Due to the fact that the European Green Bond Standard regulation has not yet been approved, it’s very important to note that the 3-year green bond that Diös issued this week cannot yet be considered as an actual European Green Bond. However, the structure of the security contract gives allows it to become a European Green Bond in the future.
NordSIP understands that the mechanism through which this optionality is implemented has added complexity to the structuring process. In its present form, Diös’ green financing framework explains that “(…) if the Factsheet associated to any existing or future Green Financing is assessed as compliant with the European Green Bond Standard further labels could apply, such as European Green Bond (“EUGB”), European Green Loan (“EUGL”) or European Green Commercial Paper (“EGCP”),” the framework says.
“Green Financing will be subject to the version of the Factsheet specified in the associated financing documentation and future changes to the Factsheet or relevant standards (for example, the Taxonomy or the European Green Bond Standard) will not apply to already outstanding Green Financing unless i) explicitly communicated by Diös and only if the intent of such changes were to align the Factsheet with the European Green Bond Standard, the Taxonomy or other relevant regulation with the purpose to fulfill the requirements of such legislation and achieve an accreditation of the Factsheet as a European Green Bond by an External Reviewer or ii) such changes are explicitly required by the relevant regulations (i.e. the Taxonomy or EUGBS). (…) Investors and third parties are advised that the accreditation mechanism for External Reviewers under the European Green Bond Standard is not yet in place nor is the standard adopted, meaning that at the time of publishing this Framework and Factsheet it was not technically possible to issue accredited European Green Bonds,” the framework explains.
“Diös might seek such accreditation by an External Reviewer at a later date with a party that is registered with the European Securities and Markets. Authority, but until such time investors and third parties must make their own assessment regarding the adherence of any Green Financing to such standards and regulation,” the framework adds.
