French institutional investors pile €500m into climate awareness structured product

A group of French institutional investors including ACMN Vie, Aviva France, Carac, BNP Paribas Cardif, CNP Assurances, ERAFP, Generali, Groupama, HSBC Assurances, Natixis Assurances, Prevoir and Suravenir have invested €500m in Tera Neva, a new sustainable investment structured product issued by the European Investment Bank (EIB), and arranged by BNP Paribas.

The index-linked bond is 100% capital guaranteed and will pay a participation of 100% on the average performance of Vigeo's Ethical Europe Climate Care Index over the life of the bond, floored at zero and paid at maturity. The index is reviewed quarterly and consists of 30 European equities weighted according to inverse volatility selected on financial and sustainability criteria based on Vigeo and Solactive filters. The index includes companies from the Stoxx Europe 600, after applying ESG compliance, climate care and financial filters.

The new bond "makes sense in the context of the French Energy Transition law", which was passed in the summer and sets up new standards for institutional investors in relation to their carbon footprint, according to Jean-Eric Pacini (pictured), head of equity derivatives sales, Europe, Middle East & Africa (Emea) at BNP Paribas.

The French bank has set up a specialist team to develop relations with extra- structuring financial agencies and supranational entities and issuers, said Pacini. "We are committed to providing ESG investments for the long term and this launch is a reflection of our expansion this year, both in terms of themes (with the climate care index) and issuing partners, as this is the first time we have done a structured product with the EIB," said Pacini.

Issue Amount:	EUR 500m
Issue date:	13 November 2015
Payment date:	18 November 2015
Maturity date:	18 May 2029
Issue price:	100% of the Aggregate Nominal Amount
Coupon paid at maturity:	Averaging used
Final Redemption:	100% of the Nominal Amount
Underlying index:	Ethical Europe Climate Care Index (Bloomberg Code: SOLCARE)
Index Sponsor:	Solactive AG
Format:	Climate Awareness Bond
Listing:	Luxembourg
ISIN:	XS1317148580

"On the sales side, there is no dedicated team because these products are no longer niche but a mainstream investment," said Pacini. "During our ESG road show last year, we saw that the audience is no longer just the sustainable investment specialists but the usual chief investment officers, portfolio managers and asset allocators."

"We see this area evolving and demanding more products and solutions, and we will respond by building solutions for every type of investor and jurisdiction," said Pacini. "We have seen interest from life insurance companies in France, pension funds in Germany, private banks in Switzerland, retail investors in Italy and Belgium, and we have a number of projects in the pipelines that will add to our ESG offering. Typically we have several product launches aimed at retail investors in progress for the Nordics."

According to Neven Graillat, global head of sustainable investment solutions, global markets at BNP Paribas, "Having the capabilities and resources is critical. The trend is clear, and we see an increasing number of investors making requests. The challenge is to create a comprehensive range of products, but also to build liquidity around those products. We will continue to dig and look for solutions that can add value to investors, while making a positive impact on ESG projects."

BNP Paribas has been pushing in ESG since last year, when it launched its first ESG-linked investment for institutional investors with a supranational entity as an issuer, according Pacini. "Since then we have been building our offering in this area and tapping into various institutional and retail markets such as Switzerland, Italy, Germany, France and Belgium with issues that have raised over €500m in aggregate, alongside several launches in Asia and the US market where we are not as visible in size but we're helping to increase awareness," said Pacini.

The launch of Tera Neva follows the first index-linked green bond featuring the Solactive Ethical Europe Climate Care Index to retail investors in Belgium and Luxembourg, which was launched last week by the World Bank (International Bank for Reconstruction and Development).

The topic of low carbon is gaining in importance globally with some of Solactive's indices deployed in a product range that is gaining increased traction in Europe. "The ESG and green bond themes (low carbon, de-carbonising) are getting a lot of attention in international markets and driving a lot of activity for us," said Steffen Scheuble, CEO at Solactive. "This area has traditionally been a focus for institutional investors, but we see an increasing number of private investors and high new worth individuals looking for ESG investments, and this will translate into more products."

Tera Neva is part of the EIB's Climate Awareness Bond programme, which dedicates proceeds to renewable energy and energy efficiency projects. Since 2007, when the EIB pioneered green bond issuance with the launch of the first Climate Awareness Bond (CAB), issuance has reached almost €11bn. CAB disbursements are earmarked for renewable energy and energy efficiency projects, allowing investors to contribute to the goal of limiting global warming to 2°C, said Bertrand de Mazières, director general of finance at the EIB said in a statement.

The launch comes ahead of the global climate conference, COP21 in Paris in December 2015.