Region Ile de France's July 2022 sustainability bond won Environmental Finance's Local authority bond of the year award, and an award for innovation in its use of proceeds. Samuel Bretillot and Manuel Thomas explain their approach

Environmental Finance: Your 2022 sustainability issue, placed in July, faced challenging market conditions. What was behind your success in issuing the €700 million ($754 million) bond?

Samuel Bretillot: It was, indeed, a challenging and very volatile market. It took us around three weeks to identify the right bond issue window, which concluded on a Friday – which is unusual, but we wanted to issue the bond before expected interest rate rises and before the summer break.

Nonetheless, the transaction was two times oversubscribed, attracting more than €1.4 billion in bids.

Manuel Thomas: That was a recognition of the financial strength of Ile de France and our recognition within the market for our regular issuance of sustainable bonds over many years. We were helped by the scarcity value of our bonds, combined with our strong sustainability reputation.

EF: As well as the Green and Social Bond Principles, its use of proceeds is partly aligned with the EU Taxonomy. What were the challenges in delivering that alignment?

SB: Our finance department at Ile de France is committed to remaining in line with leading market practices. As a pioneering issuer in the field of sustainable finance, we wanted to be as transparent as possible.

One of the challenges this involves lies in supporting all the region's operational departments to align as many projects as possible with the EU Taxonomy. The most important of these is the transport category, which represents at least 50% and up to 75% of each bond's allocation.

Ile de France's 2021 bond allocation

It requires a lot of information, for example, technical data to meet the 'Do no significant harm' criteria. We have to work closely with our operational departments to ensure they know what data they need to collect so we can demonstrate alignment.

Going forward, we intend to regularly update our green, social, and sustainable bond framework in line with the new regulations, such as the forthcoming EU Green Bond Standard.

EF: You updated your framework in 2021 – what changes did you make?

SB: The most important change was to structure and show clearly how our framework takes into account the ICMA [International Capital Markets Association] principles. So, when you read the framework, you will see sections about use of proceeds, project evaluation and selection, management of proceeds, and reporting and external review. The framework has also been defined, where possible, in accordance with the EU Taxonomy.

We have also established a sustainable finance committee under the new framework. It brings together our finance department and main operational departments and two qualified personalities. The committee oversees the validation of projects presented in our impact reports and manages any changes to the framework to reflect best practices.

EF: Almost all of Ile de France's financing since 2016 has been raised in the green and sustainable bond markets: what changes have you had to make to your approach to capital raising to achieve this?

SB: We issued our first sustainable bond in 2012. What we found over the years is that greater transparency is needed regarding the projects funded; our issuance framework and reporting have evolved over time, improving the information we produce on use of funds and the categorisation of projects. We have also worked to improve our investor base, by strengthening our relationships with so-called green and sustainable investors.

EF: You note a loyal investor base for your sustainability bonds. Are you seeing any evolution in investors' expectations when it comes to local authority sustainability bonds?

SB: Investors are quite attracted to the competencies of local and regional governments, given the contributions we can make to sustainable development. Because we tend to be closely regulated, we offer a guarantee of quality and insurance against greenwashing.

MT: Investors expect Ile de France to maintain its position as an exemplar, because of our seniority within the green bond market. We were the first local authority to issue a benchmark, 10 years ago, and each year we try to improve our practices in the green and sustainable market. We work very hard to respond to the latest evolutions in regulation because we have a reputation to maintain. We're always very keen to discuss investors' demands, as we have always tried to be on the forefront of the market.

EF: What's next for your sustainable financing plans?

SB: We plan to continue issuing in benchmark bond size, of €500 million and more, in sustainable format in the coming years. We are considering extending our alignment with the EU Taxonomy to our Green Buildings category, to reach more than 90% alignment. We also intend to continue to improve our reporting transparency in line with investor demands, to stay on top of best market practice.

Samuel Bretillot is debt and borrowing officer and Manuel Thomas is finance director at Region Ile de France.

For more information, see: www.iledefrance.fr/region-funding