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Tritax Big Box sets the stage for green bond issuance

The trouble is that politicians can implement long-term policy initiatives safe in the knowledge that they would have been put out to pasture long before the real-world impact of said initiatives comes to light. The practicality of Boris committing the UK to all-electric motoring by 2030 is open to question simply because of the shortened timeframe and lack of supporting infrastructure. Meanwhile, Joe Biden has pledged that the US will account for “net-zero emissions” by no later than 2050 – this from an economy reliant on fossil fuels for 80 per cent of its primary energy consumption.

The take-up of renewable energy sources has thus far been a gradual process, but the accelerated transition implicit in the policy commitments would require further regulatory measures, vastly increased subsidies and tax breaks at a time when the public finances of both countries are in disarray. There are signs, however, that City institutions might be willing to take up some of the slack.

In the latest sign that environmentalism has become a mainstream consideration where corporate strategists are concerned, Tritax Big Box REIT (BBOX), which closed out its June half-year with net debt equivalent to 48 per cent of net assets, has priced £250m of unsecured green bonds under its £1.5bn Euro Medium Term Note Programme. 

Tritax’s logistics assets continue to benefit from changing retail habits and the company has access to the largest land bank for the development of these types of assets in the UK. Management is looking to increase the use of renewable energy, while boosting the sustainability of existing assets. Some may question whether the green bond issue is appropriate given that tenants are demanding greater efficiency in properties they occupy, in any case. But a spokesman for the company expects “green bonds to become the norm going forward… companies will need to have a green slant to financing in order to capture this type of liquidity”.

Earlier this month, the Chancellor of the Exchequer, Rishi Sunak, confirmed that the UK will issue its first sovereign green bonds in 2021 as part of its Covid-19 stimulus package. The UK will join other European countries, most notably Germany and Sweden, in providing sovereign issuance in which proceeds are allocated solely to financing new or existing projects with sustainable objectives.

The chancellor’s announcement was made at the Green Horizon Summit, an event sponsored by high-profile City backers such as Barclays (BARC) and HSBC (HSBA) and supported by the World Economic Forum (WEF), presumably as part of its so-called ‘Great Reset’ initiative. The Davos crowd believes that the Covid-19 crisis represents an opportunity, as it is “fundamentally changing the traditional context for decision-making” from both political and economic perspectives.

Yet regardless of the Maoist overtones of the Great Reset, real change is proceeding on the back of institutional and regulatory pressure. Indeed, the Financial Conduct Authority (FCA) outlined beefed-up rules on climate risk reporting at the Green Horizon shindig, bringing UK regulations in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures.

And despite the general slump brought about by our response to Covid-19, the market in green bonds, both sovereign and corporate, has continued to expand. Around $270bn (£208bn) in these types of bonds were issued last year, marking 2019 as an all-time high. Predictably, issuance trailed off through March/April 2020 before staging a recovery through the second quarter ahead of a surge in September, which saw the total dollar value 12 per cent in advance of the same period in 2019. Further issuance is set to follow in response to Boris’s 10-point green industrial revolution plan, with a potential flood in the offing if the Democrats manage to achieve parity in the US Senate following the run-off in Georgia on 5 January.

Some investors may view the expansion of capital in this area as a strategic opportunity, but the possibility exists that a hasty transition could destroy more value than it ever creates. A surge of capital into new energy and utility projects could also simply push up construction costs, eroding returns on investments in the process.