Italy's first green bond turns 10 (and expires)

Italy's first green bond matures. It is the ten-year bond issued by the multi-utility Hera on 4 July 2014 with a coupon of 2.375%. The bond was issued with a price slightly below 100 (99.464): two ten-year BTp bonds with similar maturities, September and December 2024, were priced at the time at 101.14 and 103.11 respectively. "The Hera green bond was issued with a lower spread than the BTp," emphasises Marcello Rubiu, sole director of the consultancy firm NoRisk, "and therefore the subscriber accepted a lower yield in order to pursue green goals. In fact, at the time of issuance, the annual yield of the Hera green bond was 2.436% compared to 3.42% for the BTp maturing in September".

The first Italian green bond benefited from the rarity effect. In 2014, in fact, even at the European level, there were very few bonds of this type, whether corporate or governmental, "and therefore the so-called greenium was much higher than it is today," adds Rubiu, who analysed the Hera green bond. Greenium is the higher price an investor is willing to pay for a sustainable financial instrument compared to a similar but traditional one.

Another point to note is 'that this green bond of Hera is a "buy and hold" by institutional investors who thus want to carry it to maturity. When compared with BTp bonds of the same maturity, the green bond shows lower volatility. So, in this case, investors perceived a lower risk'. So much so that the issue had in 2014 three times more demand than supply.

Moving on from finance to the concrete projects supported by the green bond, it must be remembered that until now, before the arrival of the EU regulations, there was only one regulation to comply with: that of the International Capital Market Association (Icma), which stipulates that the financing can also be used for eco-sustainable projects that have already begun. In the press release at the time, it was specified that the green bond would also be used "to extinguish in advance part of the company's existing debt contracted to finance certain eco-sustainable projects" as well as to support new ones.

The green bond has therefore financed old and new projects. In the table, there is a detailed breakdown of the use of the EUR 500 million raised thanks to the 'green' issue: they range from the Imola cogeneration plant, the most impressive one in terms of financial size, to district heating networks in some areas of Emilia. Projects that were closed in 2017, well before the green bond maturity date. Since that year, as required by the Icma regulation, the reporting obligation has ended for Hera.