Zurich ups sub-sovereign ESG buzz

3 min read
EMEA
Julian Lewis

Switzerland’s biggest city is finally catching up with its local peers by entering the green bond market, reinforcing the current wave of new sub-sovereign issuers offering ESG debt in Europe and beyond.

Nearly six years after Geneva opened the Swiss sub-sovereign green market with a SFr620m (around US$650m at the time) dual-trancher in November 2017, the City of Zurich has launched its green bond framework and will hold an investor call on Thursday ahead of an inaugural deal.

Credit Suisse, Raiffeisen, UBS and Zuercher Kantonalbank are arranging the call and will be joint lead managers and bookrunners for the subsequent offering.

ISS ESG has published a second-party opinion that the city’s framework is aligned with the Green Bond Principles administered by the International Capital Market Association. The initiative will make a “limited contribution” to the United Nations’ Sustainable Development Goals, the SPO provider said.

The city, which has a AA+ credit rating with positive outlook from S&P, has a more ambitious net-zero target than Switzerland’s nationally determined contribution under the Paris Agreement on climate change. While this commits the country to halve its 1990 greenhouse gas emissions by 2030 and reach net zero by 2050, Zurich is aiming to achieve this goal by 2040.

Its green bonds will contribute to this – mainly by financing environmentally friendly construction projects, both with new buildings and repairs to existing stock.

Zurich issues at both the city and cantonal level. The wider canton was last in the market in November with a SFr300m seven-year conventional bond, while the city most recently offered a SFr160m 14-year in January.

The country’s previous sub-sovereign green bonds have been issued at the cantonal level by Geneva and its third city, Basel.

One foreign sub-sovereign has also issued green bonds in Switzerland. Auckland Council got SFr200m away across five and 10-year maturities in October, ending nearly a decade’s absence from the currency.

Although Zurich is a late mover, its cantonal bank is a long-established issuer of the product and leads its sector. Zuercher Kantonalbank has accumulated more than SFr1bn in green outstandings from annual new issues in its name every year since 2018.

Its most recent deal was a SFr200m seven-year last July.

Funding strategy

Antonio Calalesina, treasurer of the Canton of Basel-City, described ESG bonds as “an integral part of our funding strategy”.

Basel-City, which also last year brought Switzerland’s first sub-sovereign social bonds, will issue further green bonds, Calalesina said.

It was most recently in the market with a SFr130m six-year late last year.

Basel-City’s latest issue emerged soon after the Swiss Confederation also made its long-awaited entry into the green bond market in autumn.

The sovereign tapped its SFr766.05m inaugural deal for another SFr346.1m in March.

An official at the Federal Finance Administration said Switzerland will keep tapping the 2038 bond until it reaches a volume where its liquidity is “sufficiently high”. It may then issue further green bonds, though it generally only opens one new line a year and this “does not necessarily have to be green”, despite its very high eligible green expenditures.