Natixis delivers green-flavoured structured product opportunities

Natixis is known for its innovation in structured products, particularly those using equity derivatives. It has also been part of the advance guard in green bond issuance. Now it has combined those skills to create a green structured product for wealthy individuals, while supporting a well-known biomedical research institute at the same time.

The product was structured by the equity derivatives team at Natixis Corporate and Investment Bank (CIB) and marketed by Natixis Wealth Management. Both are part of Groupe BPCE, whose Banque Populaire and Caisse d’Epargne retail networks make it France’s second-largest banking group.

Natixis CIB is a past winner of The Banker’s Investment Bank of the Year award for equity-linked products. Natixis Wealth Management operates out of France and Luxembourg, where more than 470 staff manage over €30bn in assets. Its target market includes business leaders, executives of listed companies and owners of family capital, including family offices.

“We develop and structure their assets with an open architecture organisation,” explains Alexandre Denis, Natixis Wealth Management’s head of engineering and advisory. “On structured products, we work with Natixis CIB and other CIBs, including US banks.”

The structured products that it arranges and distributes to its clients are usually based on equity indices, either single stock or baskets of stocks, though it also deals in credit-linked investments.

Products on offer

When it comes to marketing, it has two distinct types of product. The first is the “campaign” product, marketed to a large client base – Natixis Wealth Management usually does four such campaigns a year. The second is the “club” product, bespoke-designed for one or a handful of clients. The firm structures 100 or more club products every year.

The recently launched green structured security is a campaign product, called Opportunité Juin 2022. It was a public offer, marketed in France over the month to mid-June 2022 (hence the name) and it was 30% oversubscribed, according to Mr Denis. He did not quantify the issue beyond saying that it was “a decent size”.

With an initial maturity of 10 years, Opportunité Juin 2022 is linked to the CAC Large 60 Equal Weight Excess Return Index, which represents the largest, most liquid stocks traded on European stock exchange Euronext Paris.

“The structure offers some protection – not total protection but a certain level, which makes it interesting in current market conditions,” says Jean-Baptiste Rozes, vice-president in solution sales at Natixis CIB.

The product is eligible for life insurance policies, endowment contracts and securities accounts. Its status is reviewed at the end of each quarter, starting in the fourth quarter. If the reference index closes at or above 95% of its initial level, then the product is redeemed early and terminated. Investors would then get back 100% of their initial investment plus a coupon equal to 1.875% per elapsed quarter – a yield equivalent to 7.5% per year. Otherwise, the product continues to the next observation at the end of the next quarter.

If it makes it through to maturity – to the end of the fortieth quarter – the same terms apply. If the index closes at or above 95% of its starting point, investors get back their entire investment plus a coupon of 40 multiplied by 1.875%, or 75%. If it closes at more than 60% of its initial level, they simply get back 100% of their original investment – no gain, no loss.

If, at maturity, the CAC Large 60 has fallen by more than 60%, their investment is reduced by a corresponding amount – if it has lost 70%, they get back 30% of their original investment. 

Going green

So far, so structured. But what sets the product apart from many others like it is its green bias. “The green element is something many other banks typically don’t offer,” says Mr Rozes. “And green bonds are new for individual investors. Until recently, only institutional investors could access this type of paper.”

The funds collected will be used to finance or refinance loans for photovoltaic and hydro projects, onshore and offshore wind farms and the development of biomass, according to Hong My Nguyen, a green and sustainable investment solutions specialist at Natixis CIB.

“That could be anywhere in the world, but mainly where it can have the most intensive impact in reducing carbon emissions,” Ms Nguyen says.

Use of funds will be undertaken in accordance with the Natixis Green Bond Framework, first drawn up in 2019, in line with the International Capital Market Association’s green bond principles. The bank says that the proceeds of Opportunité Juin 2022 will be deployed according to stringent eligibility and traceability criteria, approved by environmental rating agency Vigeo Eiris.

One of the framework principles adopted by the bank is that there should be no premium (“greenium”) on any green notes it issues, but that pricing should be the same as plain vanilla notes.

Natixis is in the process of aligning its balance sheet with the goals of the Paris Agreement on climate change. “When a bank issues a green bond, that builds the green capabilities on its own balance sheet,” Ms Nguyen explains. “We are committed to increasing the ratio of green assets on our balance sheet, using our Green Weighting Factor mechanism.”

The weighting factor allows the bank to assess the climate impact of each financing deal in advance, and to favour financing with the most positive impact for the environment and the climate. It aims to align its balance sheet with a decelerating global warming “trajectory” of +1.5 degrees Celsius by 2050, with an intermediate trajectory goal of +2.5 degrees by 2024.

“It’s very difficult for banks, because they already have existing balance sheets,” Ms Nguyen notes. In the oil and gas sector, Natixis no longer finances heavy oil and shale and tar sands production. It has stopped financing thermal coal production and companies that depend on it.

Opportunité Juin 2022 continues the greening of the Natixis balance sheet and underscores the direction of travel. But it is not the first of its kind. In 2020, Natixis Wealth Management launched a similar green structured product, which has since undergone early redemption.

Backing scientific exploration

What is completely new about Opportunité Juin 2022, however, is its support for Institut Pasteur, a charitable foundation set up by renowned French chemist and microbiologist Louis Pasteur in 1887.

The institute focuses on research, public health, training and development of research applications, and is a globally recognised leader in infectious diseases, microbiology and immunology. Since its inception, 10 of its scientists have won Nobel Prizes, including two in 2008 for discovering the virus that causes Aids.

Natixis CIB has made a donation to the Institut Pasteur of 0.2% of the total securities invested in Opportunité Juin 2022. “The 0.2% does not come from the investors,” Mr Rozes points out. On the same principle as “no greenium”, it is a gift from the bank and the distributor as a result of lower structuring and distribution fees.

More specifically, the donation will support the institute’s Explore programme, which brings together researchers, donors and sponsors to focus on what it calls “scientific exploration”. The Institut Pasteur was prompted to launch the programme in view of the emerging worldwide pressures of pandemic risks, an ageing population and increased disease associated with the environment.

It wished to support healthcare for all and support action on all fronts, from understanding living mechanisms to research into new illness prevention and treatment methods. So, Explore covers four ambitious projects – immunotherapies of the future, brain tumours, Alzheimer’s disease and emerging infectious disease.

The Opportunité Juin 2022 donation is part of a broader partnership between Natixis CIB and Institut Pasteur, whereby several structured products will be issued with this feature. “Our clients are increasingly paying attention to the extra-financial aspects of their investments, and especially the positive impact that they can have on the environment,” Mr Denis says. “This brings meaning to their investment.”