Kutxabank is preparing the first covered bond in the field of socially responsible investment (SRI) outside Germany, a cédulas hipotecarias with proceeds earmarked to support housing for those on low incomes under a public programme and reviewed by a second party opinion provider.

The deal will be the first SRI covered bond from Spain and only the third overall, after Münchener Hypothekenbank opened the sector with a Eu300m ESG (environmental, social, governance) Pfandbrief in September 2014 and Berlin Hyp sold a Eu500m Green Pfandbrief in April. Kutxabank’s issue, which it has described as a “social covered bond”, will have more in common with MünchenerHyp’s, which was backed by loans to housing cooperatives, while Berlin Hyp’s deal was the first SRI covered bond under the more narrow “green” label. The Spanish bank has nevertheless said that its deal “follows the transparency and integrity promoted by the Green Bond Principles (GBP)”, which are standards drawn up under the auspices of the International Capital Market Association.

Kutxabank’s social covered bond will be a regular cédulas hipotecarias and backed by the same cover pool as its other mortgage-backed covered bonds, and buyers will have the same claim against assets as holders of the bank’s other covered bonds.

However, an amount equal to the proceeds will be used for financing existing social housing loans under a programme Viviendas de Protección Oficial (VPO) and new social housing projects during the term of the issue – Kutxabank already has Eu2.4bn of VPO loans in its cover pool (equivalent to a 13.4% share) and Eu1.5bn of these are in the Basque Country, which the social covered bond is being restricted to.

The Spanish bank describes the planned issue as “a robust and credible social bond with a positive social outcome, supporting the access to affordable housing for low income individuals and families”, which will “support the growth of the Social Bond Market and its development in Spain, helping to align both issuers and investors with broader objectives of society”.

The VPO takes in housing units intended for rent or purchase, with regulated dimensions and prices, and to be eligible for the social covered bond proceeds mortgages must be issued to individuals or families who are permanent residents of the Basque Country and qualify as low income or have special needs, such as a handicap or aged 70 or over. According to Kutxabank, the Basque government’s VPO programmes are carried out by Etxebide, a public institution that provides operational support to the performance of the Basque public housing service. The Spanish bank will disclose annually the details of the loans provided under the programme using the social covered bond proceeds.

Sustainanalytics, an ESG and corporate governance research and ratings company, has reviewed the framework for Kutxabank’s social covered bond and provided an opinion on the allocation, management and reporting aspects of the bond, according to the Spanish bank.

In a summary of Sustainanalytics’ opinion, Kutxabank highlighted that it is recognised as an outperformer in the social category of the agency’s Global Platform. “Sustainanalytics is of the opinion that Kutxabank is socially-oriented and well-positioned to issue a social bond,” according to a Kutxabank presentation.

The Spanish bank has mandated BBVA, Commerzbank, Crédit Agricole, HSBC and Natixis for the deal. Kutxabank’s cédulas hipotecarias are rated Aa2/A by Moody’s and Standard & Poor’s.