Green promissory note loans for sustainable infrastructure

Investors are increasingly looking for ways to invest their money sustainably. The City of Offenbach has joined the small group of municipalities across Germany that have recognized this trend and successfully placed a so-called green promissory note loan of 136.5 million euros on the capital market. This innovative form of financing provides the city with capital market funds that it can invest in sustainable projects to improve its infrastructure. At the same time, it is making a contribution to climate protection by continuously reducing the city's greenhouse gas emissions through energy-efficient buildings. Offenbach aims to become climate-neutral by 2045 at the latest. City Treasurer Martin Wilhelm explains: "The city of Offenbach has a great need for financing, especially for schools and daycare centers. With the green promissory note loan, we are tapping into new sources of credit and using alternative forms of financing to invest sustainably."

The green promissory note loan is a new and important building block to enable the city to modernize its infrastructure financially. The funds from this capital market transaction will be used in accordance with the City of Offenbach's Green Finance Framework. This term refers to a framework with corresponding criteria and guidelines for instruments to finance sustainable projects with a clear benefit for the environment, climate and society. The City of Offenbach is considering several such projects in the areas of energy-efficient buildings and adaptation to climate change, including the new construction of the Lindenfeld Integrated Comprehensive School and the Geschwister-Scholl School, both of which meet KfW Efficiency Standard 40. In addition, the Main dyke is being renovated and reinforced to improve protection against the increased risk of flooding due to climate change. The framework is thus in line with the Green Bond Principles of the International Capital Market Association (ICMA) and the Green Loan Principles of the Loan Market Association (LMA).

City Treasurer Wilhelm emphasizes: "With the successfully placed green promissory note loan, we are linking our future-oriented urban development with sustainable financing. At the same time, the City of Offenbach is sending a strong signal to the financial market that sustainable financing is also possible and sensible at municipal level." Markus Riedl, Head of the Treasurer's Office, adds: "The market for sustainable investments is growing strongly and we see a lot of potential for Offenbach. Our sustainability criteria set out in the framework have been reviewed and certified by an independent institute through a second party opinion to ensure that they meet recognized market standards."

The City of Offenbach has secured Helaba as its partner for this new financing instrument. It acted as the sole lead arranger for the city's successful promissory note transaction. The loan will be processed via the newly established municipal enterprise GEO Grüner Eigenbetrieb Offenbach, which will take over the borrowing and repayment. The volume of the promissory note loan amounts to 136.5 million euros and was divided into long-term tranches of 10, 15 and 30 years due to very good investor demand. The establishment of the GEO company, which is managed by existing staff from the treasury and the Office for Planning and Construction, also ensures that the capital market funds raised are used in a transparent, targeted and proper manner within the framework of budget management in accordance with the requirements of the municipal financial supervisory authority.

"A key objective was to reach new investor groups; this was achieved in full," continued Riedl. More than 85% of the investor group is made up of insurance companies, investment and development banks and pension funds/pension institutions from the institutional sector. The remaining investors are from the savings bank and cooperative sector as well as a foreign bank.

"The successful placement of the green promissory note loan shows investors' confidence in our sustainable finance strategy. We are proud to be the first Hessian municipality to take this path and to join the exclusive circle of cities throughout Germany that use sustainable capital market instruments to cover their investment needs. We have thus secured the financing of significant measures that make an important contribution to climate protection, for example by clearly focusing on reducing greenhouse gas emissions," concludes Wilhelm.