Lloyds hopes to help Britain with ESG bond

Tue Jun 24, 2014 10:07am EDT

June 24 (IFR) - Lloyds Bank is hoping to raise its first Environmental, Social & Governance (ESG) bond, the latest institution to use the bond market to fund good causes.

The issuer will meet with investors in London and Edinburgh this week and early next week and will look to launch a sterling denominated senior unsecured ESG transaction afterwards.

The market for Green and socially responsible bonds has grown substantially over the last 18 months. Public sector issuers have so far dominated activity, but Lloyds is aiming to develop a new branch of this market and align it to its "Helping Britain prosper" agenda.

"This is different from outstanding Green bonds, there is a very defined audit trail and our independent auditor will ensure that the proceeds go to an appropriate place," said a banker. "We hope this will be the beginning of a more robust framework for these bonds."

There will be a quarterly use of proceeds report which will be reviewed and endorsed by Lloyds' external auditor, currently PwC. The review process is expected to be ongoing for the life of the bond.

The new benchmark is expected to have a 4.5- to 5-year maturity and will be held in eligible liquid assets until Lloyds finds a project to invest in.

RANGE OF OPTIONS

There are a wide variety of projects that the ESG bond proceeds can by routed to, although Lloyds is planning to focus on four key areas: agriculture, a regional growth fund, healthcare and regional SME lending.

The regional growth fund for example is focused on the UK's most deprived areas as indexed by the Bank of England.

"The bond features a robust and transparent reporting framework, designed to meet the needs of the growing socially responsible investment community," said James Garvey, managing director, head of capital markets and portfolio management at Lloyds Bank.

The bank will try to allocate the biggest part of the bond to SRI and ESG investors. According to Lloyds, the United Nations Principles for Responsible Investment has attracted over 1,200 investor signatories, representing USD34trn assets under management. The signatories have agreed to integrate ESG factors into their investments.

Lloyds said the decision to launch this bond would not only support its Help Britain agenda but also help to develop this growing market. (Reporting By Helene Durand, editing by Julian Baker)

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