NRG Energy has brought the US capital markets a step forward with its inaugural sustainability-linked bond, introducing a new flavor of greens for its debt investors to chew on (PFR, 11/18). But as usual, European corporations led the way.

It was Italy’s Enel that first tested the concept – whereby the coupon on a bond can increase during its term if the borrower does not meet sustainability targets – with an offering in dollars in September 2019. Since then, issuers from Brazil, Switzerland and France have followed suit in various sectors.

The general principle had already been tried out in the loan market, starting in 2017 when French shopping mall owner Unibail-Rodamco and Dutch healthcare technology company Philips linked the margins on their revolving credit facilities to environmental metrics.

More than a year later, Michigan’s CMS Energy brought sustainability-linked revolvers to the US (PFR, 6/11/18). Kudos to CMS for being the first in the US, but when is an American power company going to be the first in the world?

It was the same with green bonds, whose proceeds are ring-fenced for investments that meet certain sustainability criteria. They’ve been around since 2008, but it took seven years for utilities in the US to get with the program (PFR, 11/19/15).

Of course, US renewable project bonds and yieldco debt had already been marketed to investors as “green,” but it requires very little in the way of clever structuring to do so when your entire business is generating renewable energy.

Perhaps we should blame the investors. It is well known that European accounts are pickier about sustainability than those in the US. Southern Power even went to the trouble of clearing its debut green bond through European exchanges – a first for the company – to tap the demand in Europe for all things sustainable (PFR, 12/1/15).

Even so, it would be nice if, for once, a US power company blazed a trail in the sustainable capital markets instead of following in someone else’s green footsteps.

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