17 February 2016

Apple takes $1.5bn bite out of green bond market

Corporate giant Apple has priced a benchmark-sized green bond, in a "tremendous boost" to the fledgling market's prospects for attracting corporate issuers.

The company, which has a market capitalisation of around $537 billion, is issuing a seven-year, fixed-rate tranche of green notes, understood to have raised $1.5 billion. That makes it the biggest corporate green issue in US dollars. It would also be the joint largest US dollar-denominated green bond, alongside KfW's $1.5 billion issue in October 2014.

The notes, which priced overnight, have a 2.85% coupon, Environmental Finance understands.

That the world's biggest company has chosen to label a chunk of its notes as 'green' is a significant show of confidence in the market, and has the potential to encourage other companies to follow suit.

Although the market has enjoyed rapid growth in recent years, corporates have so far not issued at anything like the scale some had hoped, particularly in the US.

 

"We view this as a tremendous boost to the green bond market," said Ulf Erlandsson, senior portfolio manager - credit, global macro trading, at Swedish pension fund AP4. "Why? An important effect of green bond issuance, besides the financing of environmental projects, is the movement of environmental issues directly into the centre of corporates, via their treasury functions.

"The status of Apple, as a debt issuer, as a large-cap multinational, and as a leading corporate is unique. If the Apple treasury is on top of green bonds, it will be hard for any other Treasury to argue why they should not be."

Mirova, the responsible investment arm of Natixis Asset Management, was one of the investors in the green bond.

"We see this as a positive step forward for the green bond market," said Chris Wigley, a Paris-based senior portfolio manager at the firm.

Apple claims the issue is "in alignment" with the Green Bond Principles, and will commission annual reports from an independent party on the allocation of proceeds, which it will publish online.

 

According to Apple's prospectus, proceeds from the transaction will be used for eligible environmental projects relating to its operations, products and supply chain. These include wind, solar and energy storage projects.

Also included are buildings that have received in the last three years – or are expected to receive – energy efficiency certifications of gold or platinum under LEED or 'very good', 'excellent' or 'outstanding' under BREEAM.

"Natural or efficient heating and ventilation", "high performance" lighting and mechanical systems and water efficiency through more effective hardware and the use of recycled water are also eligible under the framework. Recycling, material recovery and waste management projects will be considered, too.

The proceeds will also potentially be used for the conservation of "precious resources", and to "pioneer" the use of greener materials in Apple's products and processes.

The green bond has a second opinion from Sustainalytics, which said the bond is "robust and credible".

"Apple's plan to use the proceeds of the green bond for renewable energy, green building, energy and water efficiency, and waste management projects aligns with green bond best practices," concluded Sustainalytics. "The company's plan to undertake projects that eliminate the use of toxic substances in its products that adversely impact human health and the environment is especially noteworthy."

The bond is expected to be fully allocated within two years and, until all funds are dispersed, Apple says it will invest the outstanding balance in US Treasury securities.

Goldman Sachs, Bank of America Merrill Lynch and JP Morgan are the underwriters on the green bond.