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Financial Times: EIB aims for €1bn with ‘green’ bond

EXTRACT: But Andrew Simms, policy director at the New Economics Foundation, the environmental economics think tank, criticised the inclusion of BP and Shell on the index, pointing out that although the pair had increased their investment in renewable energy, their core business was still fossil fuels.

THE ARTICLE

By Paul J Daviesand Robert Orr

Published: May 23 2007 03:00 | Last updated: May 23 2007 03:00

The European Investment Bank, financing arm of the European Union, hopes to raise about €1bn ($1.34bn) for investment in “green” projects by means of a bond that will offer investors a guaranteed return and the feel-good factor of socially responsible investing.

The EIB is being supported in its efforts by FTSE, the index company jointly owned by the London Stock Exchange and the Financial Times. An environment-focused offshoot of the FTSE4Good index will be formed to calculate returns for the EIB bondholders.

The decision reflects an increasing trend for finance companies to go to the international capital markets for money to fund good causes. In recent months, investment banks have helped to raise more than $100m for microfinance projects, very small loans to individuals in developing countries, and about $1bn for large-scale immunisation projects.

Bertrand de Mazières, director general of finance at the EIB, said: “With this bond, the EIB is inviting investors and the banking community to address climate change.”

The money raised will be used to fund projects in renewable energy and energy efficiency in Europe to support climate protection, the bank said.

Investors will also have an option to spend some or all of their returns at maturity to buy and “retire” carbon credits from the EU Emissions Trading Scheme. This would reduce the number of available credits in circulation and encourage companies to reduce carbon emissions.

The issue offers capital protection along with a minimum guaranteed return of5 per cent at the end of its five-year term, making it appealing to retail investors. However, the banks distributing the deal – Dresdner Kleinwort, Merrill Lynch and UniCredit – said they also hoped to sell it to institutions. Returns will be linked to the performance of the FTSE4Good Environmental Leaders Europe index, which selects companies based on “best practice” in management approach to environmental impact.

Among the 40 companies selected for the new index are BHP Billiton, the miner, BASF, the chemicals company, as well as oil majors Royal Dutch Shell and BP.

Mark Makepeace, chief executive of FTSE Group, said: “Best practice is about having clear policies, the systems to back those up and the reporting lines in place. That’s what we look to companies to provide.”

But Andrew Simms, policy director at the New Economics Foundation, the environmental economics think tank, criticised the inclusion of BP and Shell on the index, pointing out that although the pair had increased their investment in renewable energy, their core business was still fossil fuels.

“The principal of shifting investment into activities that tackle climate change is urgent and necessary, but the label needs to accurately describe the product,” he said.

Copyright The Financial Times Limited 2007

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