NatWest this week issued a €750m green bond with a twist. It did not just market the deal as a green bond — it made it clear this was an “electric vehicles green bond”, with a distinct label and defined use of proceeds.
The UK lender isn’t alone in sub-labelling its labelled bonds. Bank of Montreal issued a C$750m "women in business" social bond in March 2021 and BPCE a €500m "sport economy" social bond last June.
All three issued their deals off already established sustainable financing frameworks.
Before this, public and private sector banks around the globe were quick to slap a Covid-19 label on every possible issue during the pandemic.
There can be benefits from clearly defining a bond’s use of proceeds. An extra label does help a deal stand out. NatWest’s on Monday attracted a peak book of €5bn, beating the €3.3bn Lloyds mustered for its conventional green bond the following day, data from GlobalCapital’s Primary Market Monitor shows.
For now, many of these notes are one-offs. NatWest followed its first labelled foray in 2021 with a flurry of other specialised bonds, but it has yet to reuse any of these labels in the public market — despite having the asset pools to support further issuance. The same goes for BMO and BPCE.
Cynics in the market might say these deals — timed to coincide with events such as the Olympics or International Women’s Day — are no more than marketing exercises.
That might be unfair, but perhaps these extra sub-labels are not needed.
The market has a clear idea of what constitutes a labelled bond. Banks' green, social and sustainable financing frameworks are well established and recognised by investors. Issuers willingly align with the Green and Social Bond Principles, which spell out in clear language what constitutes a green or social bond — as does the EU’s Taxonomy of Sustainable Economic Activities.
If investors want detail, they can consult the issuer's framework.
Adding additional nametags to these already specialised bonds risks muddying the waters and confusing less experienced investors.