How treasury helped Verizon showcase its commitment to environmental sustainability.
WHY: Attracts investors, promotes sustainability commitment. Verizon told attendees at NeuGroup’s tMega 2019 H1 meeting that its $1 billion, 10-year green bond sale in February gave the company access to diverse global investors who value businesses that promote renewable energy and other green projects. “We have a story to tell and that’s why we issued the green bond,” the company’s assistant treasurer for capital markets and corporate finance told the group. “We wanted to tell everyone that sustainability and social responsibility is a big part of our core strategy.”
Green/ESG policies may demand it: To underscore the importance of environmental, social and governance (ESG) issues, one member whose company had already issued a green bond told the group, “If you have not been asked to do a green bond, you will” because the head of environmental affairs/sustainability will want you to do it (and if you don’t have such a person you will). This idea was confirmed by several members who said the session was timely because CEOs were asking about it in response to news about Verizon’s issue. Boards are getting behind this too.
SPECIFICS: As investor interest in ESG issues and investing grows, the bond sale provided a platform to highlight Verizon’s commitment to source renewable energy equivalent to 50% of its total electricity usage by 2025. Verizon also wanted to emphasize the potential of 5G wireless technology to help consumers and businesses reduce carbon footprint, in part by allowing for real-time responses to energy demand.
ICING ON THE CAKE: Strong investor demand meant Verizon had orders for $8 billion of bonds, an oversubscription that allowed it to price the bonds to yield 3.9%, lower than the company’s regular bonds, something the assistant treasurer said made the company “very happy.” And Verizon was glad to acknowledge the demand from dedicated green bond investors who were allocated nearly 70% of the issue despite accounting for 45% of the order book.
HOW: Get a strong bank to guide you through the process. Verizon said it’s essential to get a bank with a deep bench and track record in green bond issuance that can do all the due diligence required, including how proceeds of the offering will be spent. You want “bankers that speak the language of sustainability,” the assistant treasurer said. You will also need to make your auditor comfortable with the bonds and the use of proceeds.
BEYOND THE BANK: Issuing a green bond involves a lot of time and effort that requires treasury to work closely with the department heads of sustainability, corporate communications and investor relations. And ESG is an area of increasing interest for ratings agencies.
FOUR PILLARS: Verizon’s presentation outlined the four components of the green bond principles—voluntary process guidelines for issuing green bonds—as defined by the International Capital Markets Association. This means green bond issuers should be prepared to:
- Identify and define the eligible green use of proceeds. Projects should provide clear environmental benefits. For Verizon, the uses of proceeds fall into five categories: renewable energy, energy efficiency, green buildings, sustainable water management, and biodiversity and conservation. Verizon worked with Sustainalytics, an outside consultant to assess eligible green investments and provide an independent (20-page) second-party opinion.
- Develop a process for project evaluation and selection. This falls under the purview of Verizon’s sustainability team.
- Develop a process to manage and track proceeds. Verizon intends to allocate the majority of the net proceeds within three years of the green bond’s issuance. It will track allocations using its internal recording system.
- Report on use of proceeds and environmental impact. Verizon will report on the aggregate amounts allocated to each category as well as the environmental impact annually.
WORD OF WARNING: Green bond issuance is not for everyone. Verizon’s AT said that the amount of incremental work required may outweigh any potential benefits. Companies without big, long-term projects that qualify as green may fall into this category, in part because the difficulty of tracking the spend is too onerous. And despite the fact that Verizon’s green bond priced advantageously, there’s no clear and consistent evidence of a pricing benefit.