Bank of Ireland Eyes Sustainability Sector
Bank of Ireland was the first Irish bank to return to the markets and is planning to release €33 billion in new lending to the economy by 2017 and seeking opportunities in the sustainability sector, writes MARTHA KEARNS.
Billionaire US investor Wilbur Ross has described his near 10 per cent stake in Bank of Ireland as his best investment since the financial crisis. It just goes to show that Bank of Ireland has come a long way in the last few years after a turbulent period experienced by all Irish banks following the economic crash, which led to the country’s main banks requiring varying degrees of State support.
But now, with increased interest from investors including Ross and sustained access to international funding markets, the Bank of Ireland Group is making good progress. As of December 2013, Bank of Ireland has repaid the State for its investment, which was a total of €4.8 billion ($6.6 billion) in cash since 2009. The bank has repaid €5.9 billion ($8.1 billion) for this support, which includes dividends, coupons, warrants and fees as well as facilitating the sale to private investors of the Contingent Capital Notes (Cocos), and preference shares. However, the State continues to hold circa a 14 per cent shareholding in the bank, which was worth €1.3 billion ($1.8 billion) according to the share price at the end of January.
Confidence in the bank appears high, bolstered by strong investor demand for funding. Bank of Ireland returned to the public bond markets in November 2012 and has been building up its transactions ever since – the latest round in January, for a €750 million ($1 billion) senior unsecured fixed rate transaction, saw order books oversubscribed at €3.75 billion ($5.1 billion) with the issue placed with a wide range of investor types with a broad diversification of geographies.
The success of consecutive funding rounds reflects a vote of confidence by international investors in both the State and Bank of Ireland. Key to the continued advancement of the bank is the focus on developing business areas and opportunities for existing clients and supporting the emergence of new enterprise.
Bank of Ireland is planning to release €33 billion ($45 billion) in new lending to the economy by the end of 2017, some of which will be targeted towards sustainable projects. And, Bank of Ireland has long recognised the opportunities in the area of sustainable finance – where it has been active for more than a decade.
“Sustainability is a key influencer in all business decisions nowadays. As a pillar bank we must engage with our customers and communities to support their aspirations in this space.”
Now, with sustainability emerging as a key theme globally, Bank of Ireland is in the enviable position of having the in-house expertise to lend to projects ranging from carbon and renewables to food and cleantech. The bank has also been a key player in the emergence of Ireland as a global hub for green finance.
Padraig Rushe, director Bank of Ireland Corporate Banking, said: “Sustainability is a key influencer in all business decisions nowadays. As a pillar bank we must engage with our customers and communities to support their aspirations in this space.”
Donal Murphy, who is the director of project finance at Bank of Ireland Corporate Banking, says that the institution is committed to supporting opportunities in Ireland across its core markets of infrastructure, energy and renewables. “We have dedicated and experienced teams who are focused on supporting these important sectors.” The bank has a pipeline of wind farm transactions and other renewable energy projects at various stages of analysis and due diligence. “We are actively supporting a range of projects in the biomass and waste management sectors where our experienced team of project finance professionals have a wealth of experience,” says Murphy.
Wind has been – and continues to be – a growth area. Bank of Ireland’s current portfolio of wind farms produce in excess of 350 MW of electricity, enough to power over 200,000 homes. For example, last year, it provided the total debt funding facilities for the 9MW wind farm at Hollyford in Co Tipperary, owned by the Viridian Group. Completed earlier this year, the wind farm is now fully operational and exporting electricity to the grid.
“The wind sector, in particular, has formed the cornerstone of renewable energy financing in Ireland and is likely to remain a very active sector over the coming years as Ireland continues to work towards achieving its national renewable energy targets, consistent with EU plans,” says Murphy.
Bank of Ireland has also been leading the way in early stage investment in the cleantech space, a critical component of Ireland’s sustainable landscape. Bank of Ireland-backed Seed Funds, totalling €49 million ($67 million), invest in start-ups and early stage companies, with a focus on export-orientated high potential entities operating in the technology, food, financial services, and cleantech sectors.
These funds are managed on behalf of Bank of Ireland and other Limited Partners (including Enterprise Ireland), by Kernel Capital and Delta Partners. Over the past four years, the funds have made several significant investments within the Cleantech space. Donal Duffy, Bank of Ireland’s Head of Enterprise Ireland Relations, states that supporting “ambitious, indigenous companies is key to the success of the funds”.
In addition to providing finance from startup to infrastructure lending, the Bank of Ireland offers risk management solutions in the nascent carbon markets. When the EU ETS (emissions trading scheme), the largest multi-country, multi-sector greenhouse gas emissions trading system in the world, was launched in 2005 it became the first Irish bank to offer a transactional capability in the carbon markets to the 100 Irish companies included in the scheme. Activity has broadened as the scheme has matured with a focus not only on compliance buying and selling – the bank transacts around 600,000t/CO2e annually – but also on devising investment products and initiating relative value transactions.
The bank has gained a reputation across Europe in the carbon space as an innovative niche player. In addition to structuring the first emissions-linked derivative for Edenderry Power in 2005, the bank designed and delivered the award-winning Giraffe Carbon Offset mortgage in the UK and launched Ireland’s first carbon-linked deposit.
In the coming years the carbon markets are set to expand rapidly with schemes in China, California, Japan and South Korea all emerging and with nearly a decade of experience in the carbon market, the bank appears well-placed to capitalise on this growing demand. According to Paul Harris, head of natural resources risk management at Bank of Ireland Global Markets: “the EU ETS has endured a torrid time over recent years. The EU has addressed many criticisms of the scheme for the latest phase and the enacted reforms point to an effective and robust market going forward.” The price curve for carbon appears to reflect that view.
LEADING THE WAY
But, Bank of Ireland believes it is important that it clearly demonstrates that it is walking the talk and year on year is increasing its internal energy efficiency targets. When the figures for 2013 are finalised, the bank expects to see a 2.5-3 per cent increase year on year in energy savings across the group. “The aim for 2014 is considerably more ambitious and we plan to achieve an increase of between 6-7 per cent, year on year,” explained Harris.
Essentially, Bank of Ireland is attempting to make all properties across its portfolio as energy efficient as possible. It is worth noting that the Bank has been leading the way, becoming the first financial institution in Europe to be certified to the ISO 500001, the international standard for energy management.
The institution was an Irish Green Award national winner in 2011. That year it was shortlisted in three categories and was named Green Financial Institution and winner of the overall Green Business Award.
The awards show the extensive work being undertaken by staff throughout the group, supporting all elements within the environmental sector. These include the provision of funding for investment in the green economy, provision of finance for personal and business customers who want to make their properties more energy efficient, provision of carbon trading and working internally to make the buildings in its own property portfolio more energy efficient.
Bank of Ireland appears to be well on the road to recovery. Harris says: “We want to benefit from the rapid growth in the sustainability business sector. We have an established track record of transactions in the sustainability sector. I believe the bank can look to the future with optimism.”
ONE HOUR OF SUNLIGHT COULD POWER THE WORLD
The energy from one hour of sunlight on the earth’s surface would be sufficient to meet the world’s annual electricity needs, yet the technology to harvest this energy remains too expensive for solar electricity generation to become a mainstream source of electricity.
That is according to Nines Photovoltaics (Nines), a Dublin based firm, which last year secured €350,000 ($481,000) from Bank of Ireland’s Seed & Early Stage Equity Fund managed by Kernel Capital. Nines says its technology reduces this harvesting cost by dramatically changing the processes used to manufacture solar cells.
Edward Duffy, CEO, Nines Photovoltaics, said: “As the number of global solar installations continues to rise, solar cell manufacturers continue to look for innovative solutions to reduce costs and increase efficiencies in order to survive. We are currently ramping up our process development and entering the market with a disruptive new technology that will address the manufacturer’s needs. “Kernel Capital’s support enables us to execute on our plans, their indepth knowledge and experience have proven invaluable,” says Duffy.
Nines is just one of many renewable energy companies that have been supported by Bank of Ireland backed seed funds.
SolarPrint Limited, a developer of high performance indoor energy harvesting technology, received a €1 million ($1.37 million) investment from Bank of Ireland-supported Seed funds in conjunction with private investors. The company is developing a technology, which converts light from any source into energy. SolarPrint’s technology provides an autonomous power source for intelligent wireless devices, removing the constraints of mains power wiring or disposable battery replacement. SolarPrint’s target market is powering wireless devices for building energy management. Buildings currently account for over 40 percent of the world’s total energy usage.
In April 2011, Bank of Ireland backed Seed Funds led a €800,000 ($1.1 billion) investment in Kilkenny based Hybrid Energy Solutions. Hybrid Energy’s technology enables significant energy savings whilst simultaneously allowing companies to pursue a green strategy using renewable energy sources whether in the heart of the city or in the remotest areas of the globe.
Nick McGrath, CEO and founder of Hybrid Energy, says: “I am proud of our role in helping communities in some of the world’s poorest and remotest regions by delivering critical power to telecommunications infrastructure. This infrastructure is life changing for people in remote communities and connects them to the rest of the world. Our solution can enable access to humanitarian aid, medical and financial support not to mention business opportunities as well as education whilst simultaneously enabling direct energy savings.”
But there is more to renewable energy and cleantech than sun, wind and water. Take BioAtlantis, for example. It specialises in the research, development and manufacture of plant biostimulants and animal prebiotics using bioactive molecules derived from renewable natural resources, including seaweed.
The Tralee-based company, with its processing facility in Kanturk, Co Cork received a €750,000 investment from Bank of Ireland backed Seed Funds in 2010, and has since established itself within the biotechnology market. BioAtlantis has expanded into 35 countries and is growing exponentially.
Also in 2010, Bank of Ireland supported Seed Funds led a €600,000 investment in Limerick based Resource kraft, the energy cost control technology specialist. The fund committed €500,000 of the investment in the company. The remainder was committed by government agency Enterprise Ireland.