How the Tideway project used sustainability to open up financing

21 July: Ines Faden, treasurer for the Tideway project, explains how issuing green bonds has kept the organisation financially strong over the past three years.

Tideway is a £4bn project to update the sewer system across London and, ultimately, reduce pollution in the River Thames. The project started five years ago and isn’t set to be completed until 2025. While it’s technically a startup, it’s also a heavily regulated, cash-hungry entity. 

With the approach and mission of the organisation focused on reducing pollution and supporting sustainable goals, Tideway started issuing green bonds in 2017. According to Ines Faden, Tideway’s treasurer, creating a Green Bond Framework was the best decision the organisation has made when it comes to raising sources of cash. 

Benefits of green financing

Green bonds are instruments just like any other bond listed on the London Stock Exchange, but they’re instruments that provide finance to assets with a clear environmental benefit. For Tideway, this is pretty straightforward: “We are what’s called a ‘pure play’, in the sense that all of our revenues are derived from an asset that has environmental benefits,” Faden explains.

Tideway has raised £1.5bn using green bonds and Faden says they have been well received by the market. So successful that Tideway increased its sustainable financing activities. Last summer, it issued its first green US private placement. This year, it upgraded the Green Bond Framework into a Sustainable Finance Framework, changing its rolling credit facility to one that is sustainability-linked. 

“We have linked the interest rate on that credit facility to a KPI, and if we meet the KPI, we have a small rebate on the interest rate,” says Faden. “It’s symbolic, but it’s important for us to say: ‘everything we do is sustainable, and all of our financing is sustainable one way or another’.”

When Tideway first started issuing green bonds, it was a relatively new concept in the UK, with only a small handful of companies issuing similar sustainable financial instruments. “People thought it was a nice to have but didn’t see much value in it.” 

Three years later, and green financing is exploding. “There is increasing evidence that by being sustainable, we attract a wider range of investors, which makes execution safer and we get better terms,” says Faden. “Sustainable is quickly becoming the default, and I think that we’re moving quickly to a point where sustainable financing will no longer be the exception.”

Raising cash out of lockdown

Under the shadow of COVID-19, Tideway’s green bonds have performed well. Faden says that companies with good environmental credentials had debt and equity that performed better than others in March, when COVID really hit in Europe.

Faden believes that sustainable financing could be a solution for many companies looking to raise cash as we ease out of lockdown. For one thing, it attracts a wider range of investors – those with specific mandates to invest in sustainable assets. 

“I can attract all of the investors that are interested in infrastructure, or in regulated assets and the water sector. But I also attract all of the investors that have a specific mandate in sustainability,” Faden explains. “That reduces the risk of execution and potentially enables more competition, better pricing, and more importantly, more certainty of getting a deal done.”

From an investor perspective, sustainable investments are perceived as less risky, says Faden. As green bonds and other sustainable financial instruments are usually third-party certified as compliant with sustainable standards, it’s easier to do due diligence. 

“Most entities in Europe will follow the International Capital Market Association’s green bond principles,” says Faden. “Investors will come in knowing that they’re buying into something that – all being equal – is likely to be less risky.”

Green bond challenges

The challenge when it comes to issuing green bonds is in the initial phase of setting up. This involves getting the attention of the executive team and board and getting the go-ahead to proceed in the creation of the bonds. It takes a fair amount of work and cost to put together a sustainable finance framework – though for medium and large entities, the expense is fairly modest compared to other expenses involved in issuing financing. It also involves working closely with other teams within the business, which Faden described as a rewarding process. 

“The finance team isn’t going to make a company sustainable – either it is operating sustainably, or it isn’t. The finance team finds people doing the right thing and works with them to put together the framework.”

Opening new doors

Past that initial hurdle, Tideway’s company and board whole-heartedly embraced green financing. “We haven’t looked back. Everyone is very pleased with the outcome,” says Faden.

“Consider sustainable finance very seriously, because in the current environment, it will open some new doors. There is a lot of help out there, for example Accounting For Sustainability has published some really helpful guides on how to raise sustainable finance. There’s a lot of help out there to get it off the ground. I think, in a difficult environment, it will facilitate raising money and reaching new investors.”