Bazalgette Finance will issue £175 million of index-linked green bonds this month to design, build, commission and maintain the Thames Tideway Tunnel (TTT) in London.
Two tranches of £50 million will be placed with Aviva Life & Pensions UK linked to RPI and will mature in 2049. The remaining £75 million, to mature in 2052, will be placed with a different investor and linked to CPI.
The transaction, which will help build the “super sewer” in London has received an overall score of 95 out of 100, equivalent to an E1 – the highest green evaluation score from Standard & Poor’s (S&P) Global Ratings.
The green bonds will be issued under Bazalgette Finance’s £10 billion multicurrency bonds programme, which was established in May 2016. The proceeds will be used by Bazalgette Tunnel to design and build the tunnel and maintain it for 125 years.
The Bazalgette companies are named after the architect of London’s sewers, Joseph Bazalgette.
S&P Global Ratings said it believes the transaction is “aligned with the green bond principles 2017”. The overall score of E1/95 was determined by taking a weighted aggregate of the subscores: transparency (88/100), governance (93/100) and mitigation (97/100).
The TTT aims to manage the amount of sewage discharged in the River Thames and the growth in water and sewerage demand associated with London’s growing population.
It was also designed to ensure the resilience of the infrastructure to changing weather patterns associated with climate change, in particular warmer and wetter winters that are likely to result in more frequent combines sewer overflows.
The green evaluation includes the “positive environmental impact from the increase of available fresh water in the tidal Thames from wastewater treatment, as well as carbon savings,” S&P said.
Noemie de la Gorce, analyst in S&P Global Ratings’ sustainable finance team, said: “The S&P Global Ratings’ green evaluation analytical methodology enables us to comment on how any given financing aligns with the green bond principles (GBP 2017).”
“The Bazalgette Thames Tideway Tunnel financing, in our view, meets the fundamental pillars of the voluntary GBP 2017. This is reflected in the green evaluation transparency score of 88 out of 100 and governance score of 93 out of 100.”
S&P Global Ratings’ green evaluation is an asset-level environmental credential which aims to provide investors with a “more comprehensive picture of the green impact and climate risk attributes of their portfolios”.
Bazalgette Tunnel, the sole owner of TTT, operates under a specific regulatory framework defined by the Department of Environment, Food and Rural Affairs, Ofwat, and the Environment Agency. Under this framework, proceeds raised by Bazalgette Finance are ring-fenced for the design, construction, and operation of the TTT, S&P said.
The construction of the 16-mile long TTT is part of the broader London Tideway Improvements plan. This will include the construction of the Lee Tunnel to connect the TTT to the Beckton wastewater treatment works, and the upgrade of five sewage treatment works: Mogden, Crossness, Beckton, Riverside and Long Reach.