Cadent Gas launches UK’s first ‘transition bond’ to spur decarbonisation

To date there have been three transition bond issuances

The £435m (€500m) 12-year bond will enable Cadent to retrofit its gas distribution network by focusing on and trialling hydrogen and low-carbon gases alongside fixing methane leakages.

BNP Paribas acted as Sole Transition Framework Structuring Advisor, as well as joint bookrunner for the UK’s first transition bond.

The transition bond differs from green bonds – which focus on the sustainable allocation of capital – in the sense that it focuses on high-carbon businesses to enable them to shift to greener practices.

The bonds focus on enabling “brown” high-carbon industries, such as utilities and transport, to transition. These industries are carbon intensive but have a key societal role to play regarding economic growth. As such, the transition bond will assist companies within these sectors to transition to low-carbon operations, products and services. Most companies within these sectors can’t access green bonds because they aren’t considered a sustainable investment opportunity currently.

Additionally, BNP Paribas claims that the bonds will reduce claims of greenwash by creating investor confidence in low-carbon business transitions. BNP Paribas anticipates that companies will use science-based targets to build investor confidence and trust.

BNP Paribas’ head of sustainable finance and solutions, global markets Delphine Queniart said: “Transition bonds are a vital tool in supporting the shift towards a low carbon economy, and they create a tangible decarbonisation roadmap for meeting the Paris agreement. 

“As a bank committed to climate action, BNP Paribas is particularly proud to be working with Cadent in creating their transition bond framework and launching the UK’s first-ever and groundbreaking benchmark Transition bond.”

To date there have been three transition bond issuances, benefiting an oil firm, utility giant and beef producer, but the bonds lack definition. If standards can be confirmed, transition bonds may soon replicate the green bonds boon, which has since its market increase by 25% between 2017 and 2018.

Cadent’s carbon

Cadent, which delivers gas to more than 11 million houses and businesses in the UK, has welcomed the UK’s net-zero emissions target for 2050 and is exploring the role that renewable gas can play in reaching said target. The RIIO2 challenge group has praised Cadent for its informed and open approach to discussions on decarbonisation.

The company is leading on a fully operational pilot project that injects zero-carbon hydrogen into an existing gas network. Called HyDeploy, the pilot involves injecting hydrogen into Keele University’s existing natural gas network, which supplies 30 faculty buildings and 100 domestic properties.

As a result, hydrogen will account for up to 20% of the gas mix in the network. HyDeploy claims this is the highest proportion being tested in Europe at present, given that existing UK legislation prevents hydrogen accounting for more than 0.1% of the national grid mix at any time.

Cadent’s chief financial officer Steve Hurrell said: “Cadent is delighted to be the first UK business to issue a transition bond. This type of financing has an important role to play in fostering the transition to a low-carbon economy.

“Cadent will use the proceeds in line with our strategy of improving performance and service levels and delivering more sustainable outcomes for our customers, stakeholders and our business.”

Matt Mace

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