Fixed Income Allianz Green Bond Credit February 2017 Green bonds market: first French issue On Tuesday 24 January, Agence France Trésor (AFT) issued the first French sovereign green bond. The EUR 7 billion placement of the Green OAT maturing in 2039 is the largest green bond ever issued. Unlike other issues launched by AFT, this green bond commits the French government, confirming its role as a driving force in the financing of projects promoting energy transition under a specific reporting process. Expanding green bond market Until recently, green bonds had spread across all bond-market segments, except among sovereign debt. Through this issue, the French treasury will enable investors to broaden their diversification among additional liquid sovereign assets.
Objectives and advantages The French government aims to achieve several objectives through this issue: Promote the development of the green bonds market. Increase investments in sustainable development and combat climate change. Contribute to enhancing market standards. Confirm the Paris marketplace s leadership in green financing. Encourage other French companies and public authorities to follow suit. Most liquid securities in the bond markets The size of the first Green OAT issue will be comparable to conventional French treasury OAT bond placements The French treasury will provide liquidity for the Green OAT which will be tapped in the future to meet investors demand The issue will provide greater liquidity and market depth Highest standards in the green bonds market The French treasury shall respect the Green Bond Principles and current best practice standards in the green bonds market The Green OAT shall include a broad range of eligible green expenditure contributing to four environmental objectives The French government undertakes to publish an ex-post impact report Source: Agence France Trésor What is a green bond? Funds raised by green bond issues are dedicated to a project (or a series of projects) which have a positive environmental impact. Green bonds differ from conventional bonds by providing detailed specific information regarding the investments to be financed and their green profile, while incurring the same level of financial risk for investors. 2
Green OAT positioning The Green OAT issued by the French government complies with the best practice standards in the green bonds market, as recommended by the Green Bond Principles guidelines adopted by market professionals covering the use of funds, project valuation and selection and reporting. The Green OAT will finance state budget expenditure and the PIA investments for the future programme, contributing to four objectives: Combating climate change, Adapting to climate change, Protecting biodiversity, Combating pollution. Expenditure is classified into six sectors under the Energy and Ecological Transition for Climate (EETC) Label: Energy, Transportation, Buildings, Natural Resources, Adaptation and Pollution Control. Sectors Asset types Objectives Buildings Transportation Energy (including intelligent grids) Applied research & innovation Scientific knowledge Real estate COMBATING CLIMATE CHANGE PROTECTING BIODIVERSITY Natural Resources Adaptation Pollution Control & eco-efficiency Systems & organisation Infrastructure Land ADAPTING TO CLIMATE CHANGE POLLUTION CONTROL Source: Agence France Trésor Project and eligible expenditure selection process Eligible expenditure is selected by an inter-ministerial workgroup. An envelope of EUR 13 billion of eligible expenditure has been selected for potential funding. Please note the following sectors are excluded: nuclear, military, expenditure primarily associated with fossil fuels, particularly in the transport industry or the power grid. Reporting In order to ensure full transparency, the French government shall publish several reports each year detailing: Fund allocation, Eligible green expenditure output performance, Ex-post green expenditure environmental impact. Eligible green expenditure environmental impact reporting represents one of the key ambitions of this issue. 3
Eligible project case study : The world s first photovoltaic road surfacing Colas, a world leader in transport infrastructure, in a partnership with the French National Solar Energy Institute (INES), has developed Wattway, a new concept of photovoltaic road surfacing which can bear any groups of traffic load. By associating road-building and solar power production techniques, the Wattway road surface provides a clean renewable source of electricity, with full traffic-bearing capacity. The major advantage of Wattway is that it produces electricity without encroaching on farmland or natural landscapes. On Thursday 22 December 2016, the first major Wattway solar road project was inaugurated on the RD5 highway at Tourouvre in the Orne Department in France. Composed of 2,880 solar panels, this road section will generate electricity for the grid. Daily average electrical output is estimated at 767 kwh, peaking at 1,500 kwh per day in the summer. For Wattway Director, Jean-Charles Broizat, this project is an important step in Wattway solar road development: We are still in an experimental phase. Building a trial site of this scale is a real opportunity for our innovation. This trial site has enabled us to improve our photovoltaic panel installation and manufacturing processes, in order to optimise our innovation to the full. The first 1km stretch of solar road is covered with solar panels produced mainly locally. Sufficient electricity is produced to power the street lighting for a town of 5,000 inhabitants. Each panel contains 15-cm wide cells making up a very thin film of polycrystalline silicon that transforms solar energy into electricity. The surface is treated to ensure skid-resistance equivalent to conventional asphalt. 4
Allianz Green Bond The Allianz Green Bond Fund offers easy market access to investors who want to make a contribution to the environment. The strategy invests primarily in green bonds issued by corporates, agencies, supranational entities and now governments. Market review With over USD 80 billion of new issues in 2016, the global green bond market has almost doubled over the past year or so. Several major market trends are shaping up for 2017 and beyond: 1 China is playing an increasingly important role, targeting this type of funding to tackle the pollution issues currently affecting the country. This topic extends beyond purely environmental matters, as pollution is also becoming a major health issue in China. 2 More stringent regulations and standardisation. The European Union has begun working on guidelines to provide a framework for the market. 3 Greater importance of impact reporting One of the key factors affecting the development of the market over the next few years will involve the increased use of these financial instruments by industrial corporate issuers, who have so far contributed only very modestly to growth in the market. Fund AUM The Allianz Green Bond Fund, launched in November 2015, now manages EUR 60 million as of 10.02.2017. Green bond portfolio weighting Initially launched with a 60% green bond weighting and 40% in European corporate investment grade issues, the Allianz Green Bond Fund capitalised on the expanding market to increase its green bond exposure to 92% as at 02.01.2017. 2016 Performance* Returning +3.5% net in 2016 (I share class), the Allianz Green Bond Fund delivered one of the strongest annual performances in the green bond funds universe, attributable mainly to our overweight positioning in corporate issuers and judicious duration management. *Past performance is not a reliable indicator of future results. Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor s local currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established a branch in France, Allianz Global Investors GmbH, France branch, www.allianzgi.fr, which is subject to limited regulation by Autorité des Marchés Financiers (www.amf-france.org). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted. RÉSERVÉ AUX CONSEILLERS DES RESEAUX DE DISTRIBUTION DU GROUPE ALLIANZ. NE PAS COMMUNIQUER AU CLIENT FINAL.