France saw the launch of numerous climate change initiatives last year, by the government, investors and industry, ahead of the landmark UN summit in Paris in December. This activity included several green bond issues by leading French corporates.

A striking example was the €200 million ($230 million) issue from energy management and automation company Schneider Electric, launched in November. This 10-year bond carried a coupon of 1.841%, and was issued in a 'club deal' in partnership with three institutional investors: Axa Investment Managers (Axa IM), Mirova and Neuflize OBC Investissements.

The transaction was jointly managed by Crédit Agricole CIB and Natixis and, unusually, was offered only to investors who are signatories to the Green Bond Principles or the Global Investor Statement on Climate Change.

But the most innovative feature of this bond is that the proceeds will be used to finance research and development (R&D) projects into technologies that help Schneider's customers reduce their greenhouse gas emissions. It is "the first corporate climate bond dedicated to finance low-carbon innovation programmes," the company claims.

"This unprecedented bond issue, both in terms of targets and purpose ... combines R&D, green technology and responsible investment. We trust this is a strong and positive signal from an industrial player and its investing partners," said Jean-Pascal Tricoire, chairman and CEO of Schneider Electric at the launch of the deal.

A second party opinion on the sustainability of the transaction was issued by Vigeo (now Vigeo Eiris) which also said that the bond aligns with the Green Bond Principles.

Some market observers expressed concern that, as R&D projects are generally subject to commercial confidentiality agreements and often fail to deliver the hoped-for benefits, it could be difficult to assess the true environmental gains from the bond. But the core investors were enthusiastic about the issue.

"This was not a problem," says Vincent Compiegne, responsible investment analyst at AXA IM. "In fact it is a positive aspect because it means the green bond is completely integrated into the corporate strategy".

Xavier Chapon, head of fixed income at Neuflize OBC Investissements, says: "The Schneider Electric climate bond issue meets all our sustainable investment criteria and the sustainability policy of the issuer is clearly defined and robust."

However, Compiegne at Axa IM concedes that, outside of private placement deals, it is more difficult to assess the 'green' financing of R&D projects.

"Outside of private placement deals, it is more difficult to assess the 'green' financing of R&D projects." - Vincent Compiegne, AXA IM

It is understood that investors were required to sign non-disclosure agreements with the company before participating in the private placement.

"At Mirova, we particularly liked the Schneider green bond for its innovation," says Chris Wigley, a senior portfolio manager with the Natixis subsidiary, which manages one of the few dedicated green bond funds.

"For example, for projects to qualify under the programme, environmental benefits should be an environmental gain of at least 10% versus the previous product generation or to the current technology employed in the industry."

"We believe Schneider Electric has set a good example as it has shown a strong commitment to actively address the challenge of climate change – and in part resource depletion also – through the development of dedicated solutions.'

However, the channeling of the bond proceeds to R&D projects and the associated confidentiality constraints did present challenges in terms of reporting on project impact, Vigeo says.

But "the environmental objectives of the projects have been clearly defined and ex-ante estimates of expected climate benefits will be assessed annually," says a spokeswoman for the research firm, in which Schneider, along with many other French corporates, has a small equity stake. "The reporting commitments integrate the confidentially needs with [a] sufficient level of transparency."

The fact that the issue was only offered to committed 'green' investors was also praised by some market participants. "It's good that they were rewarded in this way, given the extra work they put in, when their allocations to other green bonds are sometimes squeezed by mainstream investors," says a leading banker, who declined to be identified.