A pioneer in the retail sector, CaixaBank's charitable roots explain its success in launching the first Spanish bond linked to the UN Sustainable Development Goals. David Wigan reports.

Javier Pano Riera

Javier Pano Riera

CaixaBank is one of Spain’s leading retail banks, serving nearly 16 million customers in banking and insurance. A pioneer of responsible financial services, the Valencia-based institution’s not-for-profit business model and deep roots in the community set it apart from its peers.

The bank is 40% owned by the Caixa Foundation, the largest charitable foundation in Spain, and the fifth largest in the world. The foundation makes more than €500m of disbursements a year to public welfare, science, education, culture and research.

Still, CaixaBank is about more than charity. Beneath the community-focused surface is a streamlined business model and significant financial firepower. The bank’s balance sheet tops €400bn, and the business posted net income of €1.9bn in 2018, representing a return on tangible equity of 9.4%. It is Spain’s number one provider of mutual funds, life insurance, health insurance and payments solutions. The bank has capital in excess of regulatory requirements and has cut its non-performing loans portfolio to just 4.2%, compared with 11.2% at the height of Spain’s recent economic crisis.

A sustainable reputation

CaixaBank is a significant lender to micro-enterprises and small and medium-sized businesses, often focusing on the most economically disadvantaged regions of Spain. It also has a track record in promoting sustainable business, having made $1.4bn of green loans, focusing on renewable energy and eco-tourism. The bank incorporates environmental, social and corporate governance into its risk management framework and is set to ramp up its activities on environmental risk management before 2021. 

Given its background, it is unsurprising that in 2019 Caixa became the first bank in Spain to issue a bond linked to the UN’s Sustainable Development Goals (SDGs). The 17 SDGs are part of the UN’s 2030 Agenda to eradicate poverty and for sustainable development. Incorporating 169 individual targets, they were adopted by 193 UN member states in September 2015.

The UN Commission on Trade and Development estimates that meeting the SDGs will require $5000bn to $7000bn in investment each year from 2015 to 2030. While government spending and development assistance will contribute, they are not expected to total more than $1000bn per year. The SDGs offer investors the opportunity to use a different lens through which to filter investment decisions. If investors believe that providing solutions to sustainability challenges offers attractive investment opportunities, they can implement investment strategies that explicitly target SDG themes and sectors.

CaixaBank is on track to meet its 22.5% minimum requirement for own funds and eligible liabilities (MREL) requirement by Jan 2021, with it reaching 21.2% in June 2019. Its additional Tier 1 and additional Tier 2 buckets are full and the bank’s strategic plan envisages rolling over €7.5bn of wholesale debt through the issuance of MREL-eligible securities, primarily subordinated debt.

“When it came to our most recent bond, we went to senior-non-preferred,” says Javier Pano Riera, chief financial officer and treasurer at CaixaBank. “We thought about a green bond but we wanted to try something different and, given our DNA, we decided a social bond was the way to go.”

Targeting poverty

CaixaBank has pinpointed 12 of the 17 SDGs as being important for its business, but selected SDG one – no poverty – and SDG eight – decent work and economic growth – as the most appropriate. “In this case we decided that the proceeds would be used by our affiliate micro bank, the focus of which is to deliver funding and finance to individuals and families in Spain with an annual income of less than €17,200,” says Mr Pano Riera. “The aim is to provide funding to some of the most disadvantaged regions of Spain.” 

The bank started working on the bond at the beginning of 2019, leading to roadshows over the summer and the publication of its Sustainable Development Goal Framework in August. The framework was verified by Sustainalytics, an expert independent adviser, which affirmed that CaixaBank has established a "credible and high-impact" agenda. It appointed HSBC as its lead adviser, supported by ABN Amro, Bank of America, Crédit Agricole and HSBC and CaixaBank itself. 

The bank planned to issue a benchmark five-year note, which was rated Baa3 by Moody’s and BBB+ by Standard & Poor’s, and spotted a window of opportunity in the third week of September. On the morning of the sale, CaixaBank set initial price talk at 135 basis points (bps) over mid-swaps. The order book filled quickly, reaching more than €2bn and leading to a significant tightening in price to 113bps over mid-swaps with a coupon of 0.625%. 

“There was a lot of interest in the SDG format, which I think suggests that it is something that is going to grow and grow,” says Mr Pano Riera. “The level of demand was illustrated by the fact that we didn’t need to offer a new issuer premium and performance in secondary has been exactly the same as for any other bond.” 

About 50% of demand for the bond was from portfolios designed to be compliant with the SDGs, he adds. “This is a market that is evolving quickly. The SDGs are quickly becoming an important part of the investment agenda and I am sure over the next year we will do more,” says Mr Pano Riera.

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