NAFIN’S ANNUAL GREEN BOND REPORT · NAFIN’S ANNUAL GREEN BOND REPORT I. Green Commitment. In...

[email protected] / 01 800 Nafinsa (623 4672)

Av. Insurgentes Sur 1971, Col. Guadalupe Inn,

CP 01020 México D.F.

1

As of November 03,2016

NAFIN’S ANNUAL GREEN BOND REPORT

I. Green Commitment.

In line with the objectives of the Federal

Government focused on promoting

Sustainable Development in Mexico, stated in

the National Development Plan 2013-2018,

NAFIN positions itself as a strategic

development bank to meet the environmental

goals of the Federal Government on the

transition to a low carbon economy. Our

objective consists of granting short, medium

and long-term funding to national and

international companies and financial

intermediaries, which promote projects in

Mexico that lead to an ecological, economic

and social development.

NAFIN participated actively in several

initiatives and conferences focused on recent

innovations in the Green and Sustainability

Bond Market in LatAm and Mexico such as:

“Project & Infrastructure Finance Summit”

organized by LatinFinance in the panel

Greener Pastures: Funding Strategies in

Renewables Markets.

Within the framework of the Dual Year

Mexico-Germany: “Dialogues for

Sustainable Projects” in the panel Green

Bonds as a new economic instrument in

Mexico.

Within the framework of a Strategic

Alliance on Green Bond Market

Development between GIZ and SEB:

“Green Bond Workshop for banks,

investors and issuers” in the panel Case

study: NAFIN’s last two Green Bond

transactions.

“Dialogue for investment strategies

aligned to the Paris Agreement” hosted by

National Institute of Ecology and Climate

Change (INECC).

Finally, in line with our mandate to develop

domestic capital markets and fostering the

Green Bond Market in Mexico, NAFIN issued

a MXP 2,000 million 7-year Green Bond to

yield and coupon of 6.05%, this offering

represents the “First Green Bond in Mexican

Pesos” on August 31, 2016. This issuance

was the first listed in the Mexican Stock

Exchange segment dedicated to green bonds.




2

II. Green Bond denominated in US

dollar framework.

On October 29, 2015, NAFIN issued a

US$500m Green Bond. The net proceeds from

the issuance of the notes are used to finance

eligible wind energy generation projects in

Mexico. We obtained a positive second-party

review from Sustainalytics and the certification

by the Climate Bond Initiative.

NAFIN was three times awarded for this

transaction, recognizing innovation and post-

deal reporting and transparency about use of

proceeds:

First Green Bond-Mexico granted by

Climate Bonds Initiative.

Bond of the year SSA (Sovereigns.

Supranationals and Agencies) granted by

Environmental Finance.

Latin American Green /SRI Bond Deal of

the year granted by Global Capital.

Following the guidance of Green Bond

Principles, we are distributing this report as of

the first anniversary of the issuance, along with

the compliance review provided by

Sustainalytics.

III. Use of proceeds.

Eligibility criteria

Activities generating energy from wind are

eligible for the use of proceeds of the bond.

These activities specifically, refer to the

development and construction of wind farms

and/or wholly dedicated transmission

infrastructure for wind farms.

Eligible Projects means financing of, and/or

investments in wind energy projects;

i. committed after or before the issuance of

the Notes; or

ii. are funded or disbursed after the issuance

of the Notes; or

iii. are funded or disbursed during previous

financial year.

Management of proceeds.

a) Allocation.

As of September 30, 2016, NAFIN’s wind

energy green portfolio amounts US$332.1mm

and is integrated by eight wind projects with a

total installed capacity of 1,198MW.

Green Portfolio: Nafin's Funded Wind Energy Projects

Installed

Capacity

Energy

Production

Wind Farm Coahuila $54.8 199.5 698.7

Wind Farm Zacatecas $58.5 130.0 337.2

Wind Farm Baja California $37.9 155.1 374.6

Wind Farm Nuevo León 1 $34.6 126.0 452.0

Wind Farm Nuevo León 2 $34.4 126.0 452.0

Wind Farm Oaxaca 6 $43.9 137.5 470.0

Wind Farm Oaxaca 5 $34.9 160.0 578.7

Wind Farm Oaxaca 4 $33.0 164.0 514.6

TOTAL $332.1 1,198.1 3,877.8

Project Name

NAFIN

Investment(US$ in

million)(1)(2)

(in MW)

(1) According to the financial model. FX Rate used is the exchange rate reported by

Banco de Mexico on September 30, 2016: MXN

(2) Considering outstanding balance as of September 2016. Figures in MXNmm

provided by NAFIN.




3

Pending US$168mm disbursements are

hold in our liquidity portfolio, invested in

overnight and short-term Investments.

b) Carbon impact reporting.

These eight wind projects are calculated to

reduce, in whole, CO2 emissions by 1.76

million tons per year, of which 244,801 tons

corresponds to NAFIN’s investment.

The reduction of greenhouse gases is

calculated following the methodology of the

Centro de Estudio de Tecnologías

Energéticas Renovables, considering an

annual electricity factor of 0.454 tCO2/MWh:

In addition, NAFIN defined a factor of tons of

CO2 emissions reduced per US$1millon

invested (tCO2/US$1million) for each project:

Funds monitoring

The loan balance, disbursements and

repayments are monitored through our internal

loan tracking system (SIRAC). On a daily

basis, the International Treasury Department

consults the latest updated loan balance

shared by the Sustainable Projects

Department and identifies the pending

disbursements amount, which are held in the

liquidity portfolio, and invests them in overnight

and short-term financial instruments.

Green Portfolio: Nafin's Funded Wind Energy Projects

Factor (tons of CO2

emissions reduced

per US$1millon

invested)

Project total

reduction of

Greenhouse Gases

NAFIN reduction

of Greenhouse

Gases

(tCO2/US$1million) (US$ in

million)(1)(2)

t-CO2 t-CO2

Wind Farm Coahuila 904 $54.8 317,209 49,547

Wind Farm Zacatecas 451 $58.5 153,088 26,384

Wind Farm Baja California 535 $37.9 170,062 20,288

Wind Farm Nuevo León 1 631 $34.6 205,203 21,817

Wind Farm Nuevo León 2 631 $34.4 205,203 21,739

Wind Farm Oaxaca 6 917 $43.9 213,378 40,242

Wind Farm Oaxaca 5 1,011 $34.9 262,751 35,345

Wind Farm Oaxaca 4 891 $33.0 233,628 29,439

TOTAL 5,973 $332.1 1,760,524 244,801

(1) Using the FX rate of MXN 19.3776 per $US1, the exchange rate published by Banco de Mexico on September 30,2016.

(2) Considering outstanding balance as of September 2016. Figures in MXNmm provided by NAFIN.

Project Name

NAFIN

Investment




4

IV. Example of projects funded.

Wind Farm in Coahuila

Nafin was mandated as the structuring bank

and administrative agent of the senior and

VAT credits of the

project. The project

consists of the

construction and

operation of a wind

farm of 199.5 MW

that will supply

electric power to

Industrias Peñoles.

The financial

closing was in June

2016 and the commercial operation date is

estimated in April 2017.

The main environmental and social impacts of

the project are:

Annual production of 698.7GWh;

enough for regular consumption of

approximately 87,000 households.

Annual CO2 emission reduction of

317,000 tons.

Wind Farm in Zacatecas

The group of banks funding the project is

comprised by two foreign financial institutions

and Nafin, the only Mexican bank that

participated in the operation with an amount

equivalent to 22% of total investment.

The Project consists of the construction and

operation of a wind

farm of 130 MW that

will supply electric

power to

Volkswagen. The

financial closing was

in November 2015

and the commercial

operation date is estimated in March 2017.

The main environmental and social impacts of

the project are:

Annual production of 337.2GWh;

enough for regular consumption of

approximately 42,000 households.

Annual CO2 emission reduction of

153,000 tons.

V. External Audit.

NAFIN engaged Sustainalytics to review all

the projects funded through the 2015 issued

bond and they concluded all eight projects

complied with the use of proceeds and

reporting criteria. For more details, please

find the Compliance Review in the next pages.

NAFIN GREEN BOND PROJECTS REVIEW

October 19, 2016 ______________________________________________________________________________

Introduction In October 2015, Nacional Financiera, S.N.C, (“NAFIN”) issued a green bond aimed at funding eligible wind energy generation projects in Mexico. In October 2016, NAFIN engaged Sustainalytics to review all the projects funded in 2015 through the issued green bond, and provide an assessment as to whether the projects met the Use of Proceeds criteria and the Reporting commitments outlined in the Green Bond Framework.

Compliance Evaluation Criteria Sustainalytics evaluated all eight wind farm projects for compliance based on whether the projects:

1. Met the Use of Proceeds criteria outlined in the Green Bond Framework 2. Reported on two Key Performance Indicators (KPIs) outlined in the Green Bond Framework

Sustainalytics has not verified the methodology or accuracy of the carbon emissions data reported as part of this engagement. Table 1 lists the Use of Proceeds and Reporting criteria. Table 1: Use of Proceeds and Reporting Criteria

Use of Proceeds criteria Key Performance Indicator (KPI)

Renewable Energy Energy produced from renewable sources

CO2e or other GHG Emissions reduced or avoided

Issuing Entity’s Responsibility NAFIN is responsible for providing accurate information and documentation relating to the details of the project that has been funded, including description of projects, estimated and realized costs of projects, and project impact.

© Sustainalytics 2016

Independence and Quality Control Sustainalytics, a leading provider of ESG and corporate governance research and ratings to investors, conducted the verification of NAFIN’s Green Bond Framework and provided an independent opinion. The work undertaken as part of this engagement included conversations with relevant NAFIN employees and review of relevant documentation to confirm the conformance with the Green Bond Framework. Sustainalytics made all efforts to ensure the highest quality and rigor during its assessment process and enlisted its Sustainability Bonds Review Committee to provide oversight over the assessment of the review.

Exceptions

No exceptions were identified. All projects aligned with the Renewable Energy Use of Proceeds criteria as well as the Reporting criteria.

Conclusion Based on the limited assurance procedures conducted, nothing has come to Sustainalytics’ attention that causes us to believe that, in all material respects, the allocation of USD 332.1 million from NAFIN’s green bond, issued to fund eligible green projects, is not in conformance with the Use of Proceeds and Reporting criteria outlined in the NAFIN Green Bond Framework.

Detailed Findings Table 2: Detailed Findings

Eligibility Criteria Procedure Performed Factual Findings Error or Exceptions Identified

Use of Proceeds Criteria Verification of eight projects funded by the green bond in 2015 to determine if projects aligned with the Use of Proceeds Criteria outlined in the Green Bond Framework and above in Table 1.

All eight projects reviewed complied with the Use of Proceeds criteria

None

Reporting Criteria Verification of eight projects funded by the green bond in 2015 to determine if impact of projects was reported in line with the KPIs outlined in the Green Bond Framework and above in Table 1.

All eight projects reviewed complied with the Reporting criteria

None

Appendix 1: List of Projects Reviewed and Project Impact

(1) Calculated as per the Centro de Estudio de Tecnologías Energéticas Renovables methodology: t-CO2=Annual Production (MWh/year) *Annual Electricity Factor (tCO2/MWh, 0.454 for 2014) (2) Considering outstanding balance as of September 2016. Figures in MXNmm provided by NAFIN.

Disclaimer All rights reserved. No part of this review may be reproduced, transmitted or published in any form or by any means without the prior written permission of Sustainalytics. This review document is for information purposes only and Sustainalytics will not accept any form of liability for the substance of the review and/or any liability for damage arising from the use of this review document and/or the information provided in it. As the review is based on information made available by the client, Sustainalytics does not warrant that the information presented in this review document is complete, accurate or up to date. Nothing contained in this review document shall be construed as to make a representation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios. Furthermore, this review document shall in no event be interpreted and construed as an assessment of the economic performance and credit worthiness of the bond.

1

Green Bond / Green Bond Programme

External Review Form

Section 1. Basic Information

Issuer name: Nacional Financiera, S.N.C, (“NAFIN”)

Review provider’s name: Sustainalytics

Completion date of this form: October 17, 2016

Section 2. Review overview

SCOPE OF REVIEW

The following may be used or adapted, where appropriate, to summarise the scope of the review.

The review assessed the following elements and confirmed their alignment with the GBPs:

☒ Use of Proceeds ☐ Process for Project Evaluation and Selection

☐ Management of Proceeds ☒ Reporting

ROLE(S) OF REVIEW PROVIDER

☐ Consultancy (incl. 2nd opinion) ☐ Certification

☐ Verification ☐ Rating

☒ Other (please specify): Annual Compliance Review

Note: In case of multiple reviews / different providers, please provide separate forms for each review.

EXECUTIVE SUMMARY OF REVIEW and/or LINK TO FULL REVIEW (if applicable)

In October 2015, Nacional Financiera, S.N.C, (“NAFIN”) issued a green bond aimed at funding eligible wind energy generation projects in Mexico. In October 2016, NAFIN engaged Sustainalytics to review all the projects funded in 2015 through the issued green bond, and provide an assessment as to whether the projects met the Use of Proceeds criteria and the Reporting commitments outlined in the Green Bond Framework. Based on the limited assurance procedures conducted, nothing has come to Sustainalytics’ attention that causes us to believe that, in all material respects, the allocation of USD 332.1 million from NAFIN’s green bond, issued to fund eligible green projects, is not in conformance with the Use of Proceeds and Reporting criteria outlined in the NAFIN Green Bond Framework.

2

Section 3. Detailed review

Reviewers are encouraged to provide the information below to the extent possible and use the comment section to explain the scope of their review.

1. USE OF PROCEEDS

Overall comment on section (if applicable): All eight projects reviewed complied with the Use of Proceeds criteria.

Use of proceeds categories as per GBP:

☒ Renewable energy

☐ Energy efficiency

☐ Pollution prevention and control

☐ Sustainable management of living natural resources

☐ Terrestrial and aquatic biodiversity conservation

☐ Clean transportation

☐ Sustainable water management

☐ Climate change adaptation

☐ Eco-efficient products, production technologies and processes

☐ Other (please specify):

☐ Unknown at issuance but currently expected to conform with GBP categories, or other eligible areas not yet stated in GBPs

If applicable please specify the environmental taxonomy, if other than GBPs:

2. PROCESS FOR PROJECT EVALUATION AND SELECTION

Overall comment on section (if applicable): Not in scope.

Evaluation and selection

☐ Defined and transparent criteria for projects eligible for Green Bond proceeds

☐ Documented process to determine that projects fit within defined categories

☐ Summary criteria for project evaluation and selection publicly available


Information on Responsibilities and Accountability

☐ Evaluation / Selection criteria subject to external advice or verification

☐ In-house assessment

3


3. MANAGEMENT OF PROCEEDS

Overall comment on section (if applicable): Not in scope.

Tracking of proceeds:

☐ Green Bond proceeds segregated or tracked by the issuer in a systematic manner

☐ Disclosure of intended types of temporary investment instruments for unallocated proceeds


Additional disclosure:

☐ Allocations to future investments only ☐ Allocations to both existing and future investments

☐ Allocation to individual disbursements ☐ Allocation to a portfolio of disbursements

☐ Disclosure of portfolio balance of unallocated proceeds


4. REPORTING

Overall comment on section (if applicable): All eight projects reviewed complied with the Reporting criteria.

Use of proceeds reporting:

☒ Project-by-project ☐ On a project portfolio basis

☐ Linkage to individual bond(s) ☐ Other (please specify):

Information reported:

☒ Allocated amounts ☐ GB financed share of total investment


4

Frequency:

☒ Annual ☐ Semi-annual


Impact reporting:

☒ Project-by-project ☐ On a project portfolio basis

☐ Linkage to individual bond(s) ☐ Other (please specify):

Frequency:

☒ Annual ☐ Semi-annual


Information reported (expected or ex-post):

☒ GHG Emissions / Savings ☐ Energy Savings

☐ Other ESG indicators (please specify):

Energy production from installed Wind Farms

Means of Disclosure

☒ Information published in financial report ☐ Information published in sustainability report

☒ Information published in ad hoc documents


☐ Reporting reviewed (if yes, please specify which parts of the reporting are subject to external review):

Where appropriate, please specify name and date of publication in the useful links section.

USEFUL LINKS (e.g. to review provider methodology or credentials, to issuer’s documentation, etc.)

SPECIFY OTHER EXTERNAL REVIEWS AVAILABLE, IF APPROPRIATE Type(s) of Review provided:

☐ Consultancy (incl. 2nd opinion) ☐ Certification

☐ Verification / Audit ☐ Rating


Review provider(s): Date of publication:

5

ABOUT ROLE(S) OF REVIEW PROVIDERS AS DEFINED BY THE GBP

(i) Consultant Review: An issuer can seek advice from consultants and/or institutions with recognized expertise in environmental sustainability or other aspects of the issuance of a Green Bond, such as the establishment/review of an issuer’s Green Bond framework. “Second opinions” may fall into this category.

(ii) Verification: An issuer can have its Green Bond, associated Green Bond framework, or underlying assets independently verified by qualified parties, such as auditors. In contrast to certification, verification may focus on alignment with internal standards or claims made by the issuer. Evaluation of the environmentally sustainable features of underlying assets may be termed verification and may reference external criteria.

(iii) Certification: An issuer can have its Green Bond or associated Green Bond framework or Use of Proceeds certified against an external green assessment standard. An assessment standard defines criteria, and alignment with such criteria is tested by qualified third parties / certifiers.

(iv) Rating: An issuer can have its Green Bond or associated Green Bond framework rated by qualified third parties, such as specialised research providers or rating agencies. Green Bond ratings are separate from an issuer’s ESG rating as they typically apply to individual securities or Green Bond frameworks / programmes.

NAFIN’S ANNUAL GREEN BOND REPORT · NAFIN’S ANNUAL GREEN BOND REPORT I. Green Commitment. In...

Documents

Transcript of NAFIN’S ANNUAL GREEN BOND REPORT · NAFIN’S ANNUAL GREEN BOND REPORT I. Green Commitment. In...