Caja Rural de Navarra is planning to launch its second sustainable covered bond tomorrow (Wednesday), after having updated its framework to include energy efficient mortgages via EPCs, with use of proceeds and cover pool now closely aligned, and SDGs mapped, its head of treasury told The CBR.

The cooperative bank has mandated Banco Cooperativo Español, Commerzbank, DZ, HSBC and ING to lead the EUR500m no-grow seven year cédulas hipotecarias transaction, rated Aa1. It will be only the third Spanish covered bond this year, following EUR1bn and EUR500m deals for CaixaBank and Bankinter, respectively, in January.

Syndicate bankers at the leads saw CRN March 2022s at 10bp, mid, and November 2023s at 17bp.

“It will be an interesting price discovery process,” said a syndicate banker at one of the leads, “given that this year we have only had two Spanish issues in January and none since.”

Caja Rural de Navarra (CRN) sold its first sustainable covered bond, a EUR500m seven year, in November 2016, and has since issued a EUR100m senior unsecured bond off its programme.

A key change to CRN’s framework in December was the addition of lending against energy efficient buildings to an existing energy efficiency category in its use of proceeds, according to Miguel García de Eulate, head of treasury and capital markets at CRN.

“Previously we had no information in our IT systems related to Energy Performance Certificates (EPCs) and the like,” he told The CBR. “However, due to our involvement in the EeMAP (Energy Efficient Mortgages Action Plan) initiative, we have been internally tagging the mortgages.

“We are working intensively on that and our aim is, as much as possible, to get real EPCs for each and every mortgage.”

With EPC data either not publicly available in many countries or not included in banks’ systems, most issuers have used other building certification data or building regulations as a proxy for energy efficiency, whether issuing green or sustainable covered bonds or senior debt. When SpareBank 1, for example, issued the first green benchmark covered bond with residential mortgages in January, the year of construction of the property was used as a “short-cut” given a lack of available EPC data.

García de Eulate said CRN’s process of sourcing EPC data involves three workstreams: mortgages of individual properties where CRN financed the real estate development, as it may therefore already have the relevant data; existing mortgages; and new origination. EU EPC legislation was implemented in Spain in 2013 and some EUR150m of lending for which CRN has EPCs have already been identified in the first workstream.

CRN’s eligibility criteria, checked by second party opinion provider Sustainalytics, mean that the underlying buildings are comfortably within the top 15% most energy efficient – which García de Eulate noted has become a market standard for energy efficiency, and which is used by the Climate Bonds Initiative in its certification – or lending is financing an upgrade of the building that improves energy efficiency by 30%.

Some EUR3bn of CRN’s lending is eligible under its sustainable bond framework, and more than half of this is mortgages – not just energy efficient mortgages, but also other lending such as social housing and mortgages for SMEs under its social inclusion use of proceeds category.

“We have been assessing the degree to which our mortgage pool is compliant with our sustainability framework,” added García de Eulate, “and we can confirm not only that the use of proceeds of our sustainable covered bond fully follows our framework, but also that enough sustainable mortgage loans exist to back all existing sustainable covered bonds.”

CRN’s debut was only the fourth covered bond to have been launched in the green and social bond market, and the first in which the use of proceeds was not explicitly tied to the cover pool, something that was at the time queried by some market participants.

The new transaction meets Sustainability Bond Guidelines introduced by ICMA in mid-2017, according to Sustainalytics, with the guidelines covering deals that meet a combination of the Green Bond Principles and the Social Bond Principles.

Sustainalytics has also mapped the nine project categories against the UN Sustainable Development Goals (SDGs), finding that they are all aligned with SDG 12, responsible consumption and production, 7, affordable and clean energy, or 11, sustainable cities and communities.

“This recognised taxonomy is very important for investors and more and more are asking us to do this,” said García de Eulate. “They want to have all the social, sustainable and green bonds they invest in mapped to the SDGs so they can explain this to their final investors.”