A growing market
In recent years, global financial participants have seen a spectacular rise in green finance activity. As policymakers increasingly turn their focus to addressing climate change, the international financial industry has been working hard to create instruments and investments that support positive environmental change.
The green bond market is at the centre of this revolution. As one of the largest financers of green globally, MUFG has become a market leader in issuing, underwriting and arranging green loans and bonds.
Since 2016, MUFG has issued five Green Bonds, totalling US$2.4 billion across US, European and Asian markets. Over the 18 month period to 30 June 2019, MUFG has underwritten 49 Green, Social and Sustainability bond issues, totalling over USD21bn.
A new sustainability frontier
This depth of green finance experience was attractive to Philips, the global leader in health technology, as it prepared to issue a new green bond.
In 2017, Philips, a company at the forefront of advancing sustainability through financial innovation, was one of the first corporates to develop a Revolving Credit Facility with an interest rate linked to its Environmental, Social and Governance score.
The company then developed its Green & Sustainability Innovation Bond Framework, under which it can issue Green and Sustainability Bonds to finance its sustainability activities, furthering its green credentials.
This area of financing is not without its challenges, namely the structural complexities related to the bonds themselves. As one of its Tier 1 banks, MUFG was instructed to help Philips navigate this process, partly due to its unique expertise from both sides of the Green Bond issuance process, having been both an issuer and underwriter.
In May 2019, with the support of MUFG as a bookrunner alongside eight other global banks, Philips issued the first bond under this framework – its inaugural Green Innovation Bond. The bonds issued were successfully priced at EUR 750 million with a coupon of 0.500%, due in 2026.
A green light for the future
This was a first for the market. Most Green Bonds involve refinancing recent capital expenditure with the use of the proceeds, either focusing on green buildings or renewable energy infrastructure.
In this case, the net proceeds will be allocated to develop future products rather than past capital expenditure. This will fund a portfolio of eligible green innovations, including Philips' own R&D initiatives, Sustainable Operations Programs and the implementation of circular products and solutions.
This is not a one-off transaction either. It is an innovative sustainability vehicle that forms part of a wider corporate strategy – creating green products for the future.
Geraint Thomas, Head of Green Loans and Bonds at MUFG, said:
“As a leading provider of green finance, we have seen first-hand the rise of green bonds as an attractive instrument for corporates seeking environmentally-friendly financing solutions.
“We are delighted to support our clients' commitment to sustainability. Philips' innovative issuance has set a new benchmark for others looking to gear their products, solutions and business models towards a sustainable future. It was no surprise that global institutional investors reacted extremely positively to Philips' issuance."