Sparebanken Vest sets up green framework for senior and covered bonds

Sparebanken Vest has established the first Norwegian green bond framework that allows for both senior unsecured issuance by the bank and covered bond issuance by its dedicated subsidiary, Sparebanken Vest Boligkreditt, with green buildings and hydropower the eligible categories for loans.

DNB sold the first Norwegian green bond in 2015, with proceeds earmarked for renewables, but then inaugurated a new green covered bond framework for DNB Boligkreditt last year while separately working on a framework for the parent bank. The first Norwegian green covered bond was launched by dedicated covered bond issuer SpareBank 1 Boligkreditt in January 2018, while SpareBank 1 SMN and Sunndal Sparebank have frameworks for senior unsecured issuance.

Sparebanken Vest’s framework allows for both green covered bond issuance, by covered bond-issuing subsidiary Sparebanken Vest Boligkreditt, and green senior issuance by the parent.

The framework will allow the bank to issue green covered bonds using eligible green residential mortgages that are part of the cover pool. Green senior issuances will use residential mortgages that are not in the cover pool, as well as commercial real estate mortgages and hydropower loans.

“We are the first in Norway to have a split green bond framework,” Fredrik Skarsvåg, CEO at Sparebanken Vest Boligkreditt, told Sustainabonds, after the framework was announced on Thursday. “It fitted really well into our business model, being a fully-owned subsidiary of a bank.

“I would not be surprised if other Norwegian saving banks active in the euro market will follow.”

Vincent de Vries, director FIG DCM, global capital markets at ING, which was lead green structuring advisor on Sparebanken Vest’s framework, said he is a big fan of such centralised frameworks.

“It effectively combines the two in a single umbrella framework that allows for green covered bond issuance and green senior issuance,” he said. “Particularly on the reporting side, a single framework with a single set of robust impact reporting covering the entire portfolio makes everyone’s life easier.”

Covered bond issuers in other countries have already established frameworks that allow for different issuance formats, some more straightforward than others. LBBW, for example, itself issues senior and covered bonds using one green bond framework, while Danske in March unveiled a framework that allows for issuance in different formats from different entities in different jurisdictions.

According to Skarsvåg, Sparebanken Vest’s framework is aligned with the forthcoming EU green bond standard and taxonomy, which are currently in draft format.

“This was really important to us,” he said.

“We’ve seen some issuers experiencing pushback because their criteria or assets are not classed as green enough, and we wanted to avoid this as much as possible.”

Like most green frameworks for covered bond issuance, Sparebanken Vest’s targets only the top 15% most energy efficient residential buildings domestically, as well as renovations with at least 30% energy savings, matching the standards proposed by the latest EU taxonomy draft.

“We tried to align it with the taxonomy as much as possible,” said de Vries. “For example, we incorporated the 100g CO2 emissions per kWh threshold for renewable energy sources, which is a first.”

Sustainalytics confirmed that this emissions threshold is aligned with the latest taxonomy report, as well as the CBI’s draft hydropower criteria.

“We voluntarily went one step forward by using this criterion in the framework,” de Vries added. “The market is becoming more mature and there are not many firsts anymore, but we tried to bake in some of these elements that we think will become the future standard.”

As an institution, Sparebanken Vest has a 73% “outperformer” ESG score from Sustainalytics and an A ESG rating from MSCI.

“Being a savings bank in Norway, I think we have a really ambitious sustainability strategy that fits perfectly into our business model,” said Skarsvåg.

“We’re going to expand our sustainability work,” he added, “the lending book and the assets that can be included.”

Sparebanken Vest has been a regular issuer in both euros and Norwegian kroner, but initial green issuance will likely be in euros, according to Skarsvåg, who said that experience has shown that there is greater demand than in Norway.

“The assets will be used there first,” he said, “as the Nokkie market is lagging a bit on the green side.”

Skarsvåg said that although Sparebanken Vest had no immediate plans for issuance, the bank was definitely eyeing up a green bond, and that market conditions after the summer break would prove critical to the timeframe.

“It will be exciting to see how the market opens when it returns, considering all the turmoil with interest rates. We’ll also have to decide whether the inaugural will be in senior bonds or in covered format.”

ABN AMRO