Document summary
Given the key role the private sector is expected to play in helping governments finance a climate-change-resilient economy, green bonds are definitely in tune with the times. Since 2013, this new asset class has seen strong growth, supported by the development of the corporate green bond market, with total corporate green issuances expected to reach USD20m in 2014, according to S&P (half of total green bond issuances, SSA included). Utilities is the sector most represented, with five issuers accounting for 61% of total outstanding nominal. However, based on a detailed analysis of the three main climate bonds issued by EDF, GDF Suez and Iberdrola, this report highlights the current 'light green' structuring of such instruments.
Taking into account current limited volumes and liquidity, as well as the 'light green' structuring of corporate green bonds, the authors assess the environmental profiles of seven utilities (EDF, EDP, Enel, GDF Suez, Iberdrola, Vattenfall and Verbund). Based on various indicators of the sustainability of their energy mix, CO2 emissions, water consumption and sustainable strategy and prospects, the main “green” players in our peer group are EDP, Verbund and Iberdrola.
We upgrade our rating on the utilities sector from Neutral to Overweight. The sector is strengthened by its credit profile and has the potential to outperform thanks to the effective refinancing activity of its main players, as well as the positive impact on financial cost and thus on cash flow generation.