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KfW raises €1.5bn via maiden green bond

A large part of the proceeds collected by the German DFI will go towards financing wind and solar projects.

KfW Bankengruppe, the German development bank, has issued a green bond with a volume of €1.5 billion.

The bond, the first ever issued by the institution, has a maturity of five years and pays an annual coupon of 0.375 percent. KfW claims the order book reached €2.65 billion prior to completion of the transaction, which has involved 90 investors with an average ticket size of below €30 million.

“With [this green bond], KfW directly connects its financing of climate protection projects and the capital market for the first time. Investors benefit from the excellent credit and sustainability ratings as well as from the liquidity of KfW bonds, and simultaneously support climate and environmental protection,” said KfW in a statement.

Green bonds differ to mainstream corporate debt instruments in that their proceeds are ring-fenced to support projects addressing environmental issues. In the case of KfW’s issue, they are linked to the bank’s environment investment programme, “Erneuerbare Energien”, which is used to finance clean power projects with a strong tilt towards wind and solar photovoltaics.

“We intend to intensify the strategic dialogue about responsibility in the capital market with our investors. Due to the positive feedback by the investors, a second green bond in our other core currency USD seems conceivable later in the year”, said Dr. Günther Bräunig, a member of KfW’s executive board responsible for capital markets.

KfW, the main development bank for the German economy, provides debt to the country’s small and medium-sized companies as well as European renewable projects. It is also a significant investor in infrastructure funds, including vehicles managed by Oppenheim Asset Management, IDFC Alternatives, Conning, Cordiant Capital, Fondaco, MGM Innova Capital and Marguerite.

Last May, Standard & Poor’s said that it expected the global green bond market to reach $40 billion this year, half of it issued by large corporates.

Yet development banks, which have traditionally dominated issuance, remain active backers of the instrument: the European Investment Bank issued its largest-ever green bond, worth €2.6 billion, last May; it had previously raised €2 billion through Climate Awareness Bonds – a type of green bond created to help tackle climate change – in February.