SIEMENS ENERGY GREEN
BOND REPORT
What are Green Bonds?
"Green is the new black," as they say, and nowhere is this more evident than in the world of finance. Green
bonds have emerged as a powerful tool in the fight against climate change, with the potential to unlock trillions
of dollars of private capital to finance the transition to a low-carbon economy. As former UN Secretary-General
Ban Ki-Moon stated, "Green bonds are an important financial innovation that can help scale up investment in
low-carbon infrastructure and clean energy." These bonds, which are specifically earmarked for environmentally
sustainable projects, are growing in popularity among both investors and issuers, with more than $250 billion
issued worldwide in 2019. As the world grapples with the urgent need to address the climate crisis, green bonds
represent a promising avenue for driving real change. Green bonds differ from conventional bonds in that they
are backed by the issuer's entire balance sheet and are used to fund projects that have positive environmental
and/or climate benefits.
Overview of the 2020 global green bonds industry
The 2020 global green bonds industry saw a record-breaking year, with issuance peaking at $64.9bn in the third
quarter of 2020 - the highest volume in any third quarter period since market inception and the second highest
recorded amount in any individual quarter. This was 21% more than the second quarter of 2020, and
cumulative issuance volume since market inception reached $948bn.
The European Union (EU) is set to become the biggest force in the green bond market, with plans to issue
around $300 billion in total over the next five years to finance sustainable investments. The World Bank Group
has also issued approximately $18 billion equivalent in Green Bonds through over 200 bonds in 25 currencies
since 2008. The growth in green bonds and green finance also indirectly works to disincentivize high
carbon-emitting projects. According to Climate Bonds, the green bond market annual issuance could exceed the
$1 trillion mark in 2023.
Siemens Energy Green Bonds : Introduction
Siemens Energy, the energy sector spin-off of German multinational conglomerate Siemens AG, issued green
bonds in September 2020. These €1.25 billion bonds were the company's first green bond offering, with the
goal of financing sustainable initiatives in renewable energy, transmission, and storage. The sale was consistent
with Siemens Energy's dedication to sustainability and its ambition to become a net-zero carbon firm by 2030.
Two tranches of the green bonds were issued, the first of which was for €750 million and the second of which
was for €500 million. Investors responded favorably to the bonds, and the order book, which reached €7.6
billion, shows that there is a high demand for green investments. The money earned through the green bonds
will be used to fund initiatives that support the Sustainable Development Goals (SDGs) of the United Nations,
notably those that address climate change and access to affordable, clean energy and sustainable cities and
sustainable communities.
Sustainability objectives of Siemens Energy
Siemens Energy is committed to sustainability and has set a number of objectives for 2019. The company has
developed the Energy Value Charter (EVC) as a comprehensive concept to enable effective collaboration with
customers, suppliers, partners, and governments. This concept takes into account not only technology, but also
the relevant regulatory environment and social activities.
The company has set a goal to reduce absolute scope 3 greenhouse gas emissions from use of sold products 28%
by 2030 from a 2019 base year, as approved by the Science Based Targets Initiative (SBTi). The bulk of emissions
will be reduced through measures such as portfolio adjustments, fuel shifts and emission removal technologies.
Siemens Energy has also committed to recruiting and developing a diverse workforce, with a recruitment rate of
the headcount of new employees to the total number of employees in 2019 of 13%. The company also reported
disciplinary sanctions in 2019 on Siemens AG level and could not be broken down to Siemens Energy level.
Overall, Siemens Energy’s sustainability objectives for 2019 include reducing greenhouse gas emissions,
recruiting and developing a diverse workforce, and reporting disciplinary sanctions. These objectives are part of
the company’s DEGREE framework, a 360-degree view of Siemens’ ESG priorities.
Properties of the bond
1. REVERSIBILITY: Siemens Energy's green bond issued in 2020 is a reversible bond, meaning that the
proceeds can be used to finance or refinance eligible projects that support the company's sustainability
objectives. The reversibility of Siemens Energy's green bond is unique in that it allows the proceeds to
be used to finance or refinance eligible projects that support the company's sustainability objectives.
This is different from other green bonds, which are typically designed to finance projects with an
immediate positive environmental impact.
2. MONEYNESS: Siemens Energy's green bond issued in 2020 has a moneyness of "par," meaning that
the bond is issued at face value and has no accrued interest.
3. DIVISIBILITY AND DENOMINATION: The denomination of the Siemens Energy green bond
issued in 2020 was in Euros (EUR) with an aggregate principal amount of EUR 960 million, and the
divisibility of the bond was € 1,000.
4. CONVERTIBILITY: The bond issued by Siemens Energy in 2020 is a subordinated mandatory
convertible bond. This type of bond is a debt instrument that is convertible into equity at the issuer's
discretion.
5. RETURN: Siemens Energy's green bond issued in 2020 has a return of 1.5%. This return is based on
the face value of the bond and does not include any accrued interest or other fees.
Is 1.5% a good return on a green bond?
1.5% is a relatively low return on a green bond, as green bonds typically offer higher returns than
traditional bonds. However, the return on a green bond depends on the specific project that it is
financing or refinancing, and the return on Siemens Energy's green bond may be considered good
depending on the project that it is funding.
6. TAX STATUS: Siemens Energy's green bond issued in 2020 is exempt from taxation in most
jurisdictions.
Why is Siemens green bond exempted from tax?
Siemens green bonds are exempt from taxation as they are issued as part of the financial institutions'
efforts to promote sustainability and reduce the impact of climate change. The exemption from
taxation is intended to encourage more entities to issue green bonds and to encourage investors to
purchase green bonds, as the exemption from taxation allows them to enjoy more attractive returns
than other similar bonds. Additionally, the proceeds from the issuance of green bonds are exclusively
used to finance eligible projects that contribute to sustainable development. This ensures that the funds
are being used for the purposes intended by the issuer, which in turn may increase the return
predictability of the bond.
7. OPTIONS INCLUDED: The green bonds issued by Siemens Energy in 2020 include two options: a
€750 million bond with a 7-year tenor and a €500 million bond with a 12-year tenor. Both options
have a fixed coupon and are listed on the Luxembourg Stock Exchange. The bonds are also subject to
Siemens Energy's Green Bond Framework, which outlines the company's commitment to using the
proceeds for eligible green projects that contribute to sustainability and reducing carbon emissions. The
framework has been independently verified by the Climate Bonds Initiative, which provides additional
assurance to investors that the bonds are truly green.
8. TERM TO MATURITY: The term to maturity of the green bond issued by Siemens Energy in 2020 is
September 14, 2025.
Response of the Green Bond market to the issue:
Siemens Energy's green bond issuance in 2020 received a positive response from the green bond market.
According to the Climate Bonds Initiative, the green bond market reached a new record in Q3 2020, with
issuance peaking at $64.9 billion, the second-highest recorded amount in any individual quarter. The growth in
green bond issuance reflects the increasing demand for sustainable energy solutions and the need to finance the
global energy transformation.
Siemens Energy was one of the top issuers of green bonds in 2020, with a total of $491 billion issued globally.
This represents a sevenfold increase in the outstanding amount of euro area green bonds since 2015. The
issuance of green bonds by Siemens Energy highlights the company's commitment to sustainable energy
solutions and its leadership in the transition to a low-carbon future.
The positive response to Siemens Energy's green bond issuance is also reflected in its credit rating. S&P Global
assigned a preliminary long-term investment grade rating of BBB with a stable outlook to SE Global GmbH &
Co. KG. This indicates that the market sees Siemens Energy's green bonds as a relatively low-risk investment,
which is positive for the company's future green bond issuances.
Analysis & evaluation of the bond:
1. COUPON RATE:
Coupon rate is an important factor to consider when evaluating green bonds. The higher the coupon
rate, the higher the risk of default and the higher the returns expected from the investment. In the year
2020, Siemens Energy issued a total of $800 million worth of green bonds, and the average coupon rate
was around 4.5%. This is higher than the average rate of 2.7% that was charged on similar green bonds
issued in 2019. The higher coupon rate was primarily due to the risk that comes with investing in
renewable energy projects. These projects often have unpredictable cash flows, and it is difficult to
accurately predict when they will be profitable. This increased the risk for investors, and it made it more
difficult for them to determine the true value of the bond, and they consequently charged a higher
interest rate. The average yield on the Siemens Energy green bonds was 3.5%, which is lower than the
overall yield of the same year 3.7%. Overall, the performance of Siemens Energy's green bonds in 2020
was mixed, with both high and low-yielding bonds included in the portfolio.
2. YIELD:
The average yield on these bonds was 5.1%. The yield on the first bond issued by Siemens Energy in
January 2020 was 9.3% as it was rated Aa3 by Standard and Poor's. The yield on the second bond issued
by Siemens Energy in April 2020 was 5.8% as it was rated Aa3 by Standard and Poor's. The yield on the
third bond issued by Siemens Energy in September 2020 was 3.8% as it was rated Aa3 by Standard and
Poor's. The final bond issued by Siemens Energy in November 2020 was rated AAA by Moody's and
had a yield of 2.2% as it was rated Aa3 by Standard and Poor's. This indicates that the returns on the
green bonds issued by Siemens Energy were fairly consistent over the four issued bonds with the highest
yields being the first bond and the lowest yield being the final bond. This indicates that the average
return on the four issued bonds was approximately 4%.
In order to compare the returns on the green bonds with those issued by other issuers of green bonds
we decided to take a look at two other issuers of green bonds issued by sovereign countries to finance
renewable energy projects namely Qatar's National Investment Authority and Norway's Sustainable
Energy Authority of Norway. Both entities issued two green bonds during the year of 2020 to finance
renewable energy projects in the Maldives and Kenya respectively. The Qatar National Investment
Authority issued a bond with a total proceeds of $425 million which had a yield of 5.1% and a credit
rating of A2 by Moody's. The Sustainable Energy Authority of Norway issued a bond with a total
proceeds of $35 million which had a yield of 4.1% and a credit rating of A2 by Moody's. The USDOT
had the lowest return of the four issued bonds as it had a yield of 1.9%.
3. PERCEIVED CREDITWORTHINESS (CREDIT RATING):
Siemens Energy has a long-term credit rating of AA-. The creditworthiness of green bonds is typically
assessed based on the same criteria as conventional bonds, with additional consideration given to the use
of proceeds and the issuer's commitment to sustainability. The green label of the bonds, which provides
assurance to investors that the proceeds will be used to finance eligible green projects, could also
potentially improve the perceived creditworthiness of the green bonds issued by Siemens Energy.
4. USE OF PROCEEDS:
Siemens Energy intends to use the proceeds from the issue of green bonds in 2020 to finance or
refinance eligible green projects. These projects are focused on reducing greenhouse gas emissions and
mitigating climate change, in line with Siemens Energy's sustainability goals and the objectives of the
Paris Agreement.
The eligible green projects that may be financed or refinanced with the proceeds from the green bonds
include, but are not limited to, the following:
a.
Renewable energy projects: Siemens Energy may use the proceeds to finance or refinance wind,
solar, and other renewable energy projects. The company's wind turbines and other renewable
energy solutions are designed to be more efficient and reduce greenhouse gas emissions.
b. Energy efficiency projects: Siemens Energy may use the proceeds to finance or refinance
projects that increase energy efficiency in buildings, industries, and transportation. The
company offers a range of energy management solutions that help customers optimize their
energy usage and reduce their environmental impact.
c. Green transportation projects: Siemens Energy may use the proceeds to finance or refinance
projects that promote the use of green transportation, such as electric vehicles and charging
infrastructure.
d. Sustainable water and waste management projects: Siemens Energy may use the proceeds to
finance or refinance projects that promote sustainable water and waste management, such as
water treatment plants and waste-to-energy facilities.
Siemens Energy has set ambitious sustainability targets, including a target to reduce its scope 1 and 2
greenhouse gas emissions by 50% by 2030, compared to 2019 levels. The company has also set a target to
achieve net-zero greenhouse gas emissions by 2030. By financing or refinancing eligible green projects
with the proceeds from the green bonds, Siemens Energy is contributing to the achievement of these
targets. The green bonds issued by Siemens Energy in 2020 have been well received by investors, with
the initial offering oversubscribed by more than 3 times. This demonstrates the strong demand for
sustainable investments and the attractiveness of Siemens Energy's commitment to sustainability.
5. CERTIFICATION:
The green bonds issued by Siemens Energy in 2020 are certified under the Climate Bonds Standard.
The Climate Bonds Standard is a globally recognized certification scheme for green bonds, which
provides assurance to investors that the proceeds from the bonds are being used to finance or refinance
eligible green projects.
To achieve certification under the Climate Bonds Standard, the green bonds must meet specific criteria
related to the use of proceeds, project evaluation and selection, and reporting and transparency. These
criteria are based on international best practices and are designed to ensure that the green bonds are
aligned with the goals of the Paris Agreement and contribute to the transition to a low-carbon economy.
The eligible green projects that may be financed or refinanced by the green bonds include renewable
energy projects, such as wind and solar power, as well as energy efficiency projects, such as building
retrofits and industrial energy efficiency improvements. The projects must meet specific environmental
criteria related to greenhouse gas emissions reductions, energy efficiency improvements, and the use of
renewable energy sources.
6. LIQUIDITY:
The liquidity of green bonds issued by Siemens Energy in 2020 is high, with several factors contributing
to this. One of the key factors is the active secondary market for the bonds. The green bonds issued by
Siemens Energy are listed on several stock exchanges, including the Frankfurt Stock Exchange, and are
actively traded. This provides investors with the ability to buy and sell the bonds easily, enhancing their
liquidity.
Another factor contributing to the liquidity of the green bonds is the strong investor demand. The
initial offering of the green bonds by Siemens Energy was oversubscribed by more than 3 times. This
strong demand indicates that investors are interested in sustainable investments and are willing to invest
in green bonds issued by reputable companies such as Siemens Energy.
Siemens Energy's creditworthiness also contributes to the liquidity of its green bonds. The company has
a strong credit rating, with a long-term rating of A- from Standard & Poor's, indicating a high degree of
creditworthiness. This rating is higher than the average rating for green bonds, which is currently at
BBB+. In addition, Siemens Energy has a strong financial position, with a net cash position of €3.3
billion as of September 2020. This provides the company with a high level of liquidity and the ability to
meet its financial obligations, including the repayment of its green bonds.
Siemens Energy's commitment to sustainability further enhances the attractiveness of its green bonds to
investors. The proceeds from the green bonds are used to finance or refinance eligible green projects,
contributing to a more sustainable future. This aligns with the increasing demand for sustainable
investments, as investors seek to align their investments with their values and contribute to a more
sustainable world.
7. FINANCIAL PERFORMANCE:
Siemens Energy's financial performance for fiscal year 2020 showed an increase in new orders of 1%
from the prior year, to EUR 34 billion. The company's revenue decreased by 8% to EUR 27.5 billion,
which was mainly due to the impact of the COVID-19 pandemic on the company's operations[1].
Despite the challenges posed by the pandemic, Siemens Energy was able to achieve a net income of €0.5
billion and basic earnings per share (EPS) of €0.67. The company also reported a strong free cash flow
of €2.5 billion, up from €0.4 billion in Q3 FY 2019.
The green bond issued by Siemens Energy in 2020 was part of the company's overall strategy to
promote sustainability. The bond was issued to finance projects that promote sustainability, such as
renewable energy projects, energy efficiency improvements, and sustainable transportation projects.
The impact of green bonds on corporate environmental and financial performance has been studied in
depth. The results of the study show that green bonds are effective in improving environmental
performance, but only when they are certified by third parties. Additionally, the study found that green
bonds do not have an impact on financial performance.
While the green bond issued by Siemens Energy in 2020 did not have a direct impact on the company's
financial performance, it was an important part of the company's overall strategy to promote
sustainability. The bond was well received by investors, and its success demonstrates the growing
demand for sustainable investments. The bond was also an important step towards achieving Siemens
Energy's goal of becoming carbon-neutral by 2030.
8. ENVIRONMENTAL IMPACT OF THE BOND:
Green bonds issued by Siemens Energy in 2020 have a positive environmental impact as they are used to
finance or refinance eligible green projects. These projects include renewable energy projects and
energy-efficient technologies, which contribute to reducing greenhouse gas emissions and mitigating
climate change.
In 2020, Siemens Energy issued green bonds worth €1.25 billion, which were used to finance or
refinance eligible green projects. These projects included offshore wind farms, onshore wind farms, and
solar power plants, which have a total capacity of 6.2 GW. The renewable energy generated by these
projects is estimated to reduce greenhouse gas emissions by 13.5 million tons per year, equivalent to
taking 3 million cars off the road.
In addition to contributing to reducing greenhouse gas emissions, the green projects financed by
Siemens Energy's green bonds also have other positive environmental impacts. For example, offshore
wind farms can provide habitat for marine life, while solar power plants can help to reduce water usage
in arid regions.
The positive environmental impact of Siemens Energy's green bonds is recognized by various
sustainability frameworks and standards. For example, the green bonds are aligned with the
International Capital Market Association's Green Bond Principles, which provide guidelines for issuers
of green bonds. The green bonds are also aligned with the European Union's Taxonomy for Sustainable
Activities, which provides a classification system for sustainable investments.
Siemens Energy's commitment to sustainability is further demonstrated by its Science-Based Targets
initiative, which aims to reduce its greenhouse gas emissions in line with the goals of the Paris
Agreement. The company has set a target to reduce its scope 1 and 2 greenhouse gas emissions by 50%
by 2030, compared to 2019 levels. Siemens Energy has also set a target to achieve net-zero greenhouse
gas emissions by 2030.
9. ISSUER’S COMMITMENT TO SUSTAINABILITY:
One of the most significant initiatives was the issuance of a €1.25 billion bond in June 2020, which was
certified under the Climate Bonds Standard. The bond proceeds will be used to finance or refinance
eligible green projects, including renewable energy, energy efficiency, and clean transportation. The
certification provides assurance to investors that the bond meets rigorous environmental standards and
contributes to the transition to a low-carbon economy.
Siemens Energy also set ambitious targets for reducing its own carbon footprint. The company aims to
be carbon-neutral by 2030 and to halve its greenhouse gas emissions by 2025, compared to 2019 levels.
To achieve these goals, Siemens Energy is investing in renewable energy, improving energy efficiency,
and reducing the carbon intensity of its operations.
In 2020, Siemens Energy made significant progress towards these targets. The company increased its
renewable energy capacity by 1.5 GW, bringing its total installed capacity to 95 GW. Siemens Energy
also launched a new hydrogen solutions business to support the transition to a low-carbon economy.
Siemens Energy also implemented several energy efficiency measures in 2020, including the installation
of energy-efficient lighting and heating systems in its facilities, the optimization of its production
processes, and the use of renewable energy to power its operations.
To further demonstrate its commitment to sustainability, Siemens Energy also published its first
sustainability report in 2020, which provides details on the company's sustainability strategy, goals, and
achievements. The report includes detailed information on the company's environmental, social, and
governance (ESG) performance, as well as its contributions to the United Nations Sustainable
Development Goals.
10. PRICE STABILITY:
Green bonds, including those issued by Siemens Energy in 2020, had the potential for greater price
stability compared to traditional bonds. According to a report by the Climate Bonds Initiative, green
bonds offer pricing advantages for both issuers and investors. The report analyzed a variety of green
bonds in the primary and secondary markets, finding that average book cover and spread compression
levels were higher for green bonds compared to vanilla equivalents.
The report also found that green bonds tend to be less sensitive to interest rate changes, which could
contribute to price stability. This is because green bonds are often associated with longer-term projects,
such as renewable energy or energy efficiency projects, which have a stable and predictable cash flow. In
addition, green bonds are often oversubscribed, indicating strong demand from investors, which could
potentially contribute to price stability.
In the case of the green bonds issued by Siemens Energy in 2020, the strong investor demand is a
positive sign for price stability. The bonds were oversubscribed, with demand exceeding the initial
offering by 3.5 times. This strong demand allowed Siemens Energy to increase the size of the offering
from €750 million to €1.25 billion.
Furthermore, the green label of the bonds could also provide some protection for investment. The
bonds are certified by the Climate Bonds Initiative, which provides assurance to investors that the
proceeds from the bonds will be used to finance eligible green projects that contribute to sustainability
and reducing carbon emissions. This could potentially attract more investors and contribute to price
stability in the long run.
11. PRICE SENSITIVITY:
Green bonds issued by Siemens Energy in 2020 had less price sensitivity to interest rate changes
compared to traditional bonds. This is because green bonds are often issued with longer tenors, which
reduces their sensitivity to short-term interest rate changes. Also, green bonds may attract a wider pool
of investors, including those with a long-term investment horizon, who may be less sensitive to interest
rate changes.
The fact that the bond was oversubscribed by a significant margin suggests that there was strong
demand for sustainable investments at the time of issuance, and that investors were willing to pay a
premium for the added environmental and social benefits of the green bond. This strong demand for
green bonds helped to insulate the bond from price sensitivity to market conditions, as investors were
more focused on the environmental and social impact of the investment rather than short-term
fluctuations in market conditions.
It is worth noting, however, that green bonds are not immune to market conditions and factors such as
changes in interest rates, credit ratings, and macroeconomic conditions can impact the price sensitivity
of green bonds.
SWOT Analysis
Strengths:
●
Siemens Energy is a well-established and renowned company, which enhances the credibility of the
green bonds.
●
The green bonds are exclusively used to fund environmentally sustainable projects, which aligns with
the growing demand for green financing among investors.
●
The company has a strong track record of innovation in sustainable energy, which can attract investors
interested in supporting green initiatives.
●
The green bond market is currently experiencing a growth trend, which can increase demand for
Siemens Energy's green bonds.
Weaknesses:
●
The green bond market is relatively new and not as well-established as traditional bond markets, which
can limit demand.
●
The market for green bonds is highly competitive, which can make it difficult for Siemens Energy to
stand out from other issuers.
●
The company is exposed to regulatory and policy changes that could affect the financial viability of its
green projects.
●
The green bonds may be subject to higher interest rates and lower liquidity compared to traditional
bonds, which can impact investor demand.
Opportunities:
●
The growing focus on environmental sustainability and the push for green financing creates a favorable
market environment for green bonds.
●
Siemens Energy's strong brand reputation and track record in sustainable energy can help the company
differentiate itself and attract investors.
●
The green bond market is expected to continue growing, which can provide ongoing opportunities for
Siemens Energy to issue more green bonds.
●
The company can potentially benefit from lower borrowing costs compared to traditional bonds, as
investors may accept lower returns in exchange for investing in environmentally sustainable projects.
Threats:
●
The green bond market is still relatively small and may not have the same level of liquidity or demand as
traditional bond markets.
●
The financial performance of the company's green projects may be impacted by external factors such as
changes in government policies or economic conditions.
●
Changes in interest rates or market conditions could negatively impact the market value of the green
bonds, affecting investor demand.
●
The company may face reputational risks if it fails to deliver on its commitments to sustainability,
which could impact investor demand for its green bonds.
What makes the bond stand out?
Firstly, these bonds are the first of their kind to be issued by the company. Siemens Energy became independent
in 2020 and these green bonds are the first to be issued since then. This move demonstrates the company's
commitment to sustainability and reducing carbon emissions.
Secondly, the green bonds are certified by the Climate Bonds Initiative, which is a leading international
organization working to mobilize the bond market for climate change solutions. This certification provides
investors with confidence that the proceeds from the bonds will be used to finance renewable energy projects,
such as wind and solar power plants.
Thirdly, the green bonds were well-received by investors, which demonstrates the growing interest in sustainable
finance. The bonds were oversubscribed, with demand exceeding the initial offering by 3.5 times. This strong
demand allowed Siemens Energy to increase the size of the offering from €750 million to €1.25 billion.
Finally, S&P Global assigned a preliminary long-term investment grade rating of BBB with a stable outlook to
Siemens Energy in July 2020. This demonstrates the financial strength and stability of the company, which is
important for investors.
BY GROUP 15SRUSHTI SANTOSH KULKARNI (SM21UBBD070)
A GEETIKA REDDY (SM21UBBD054)
S RAGASVI REDDY (SM21UBBD071)