Providing for the Future - Sustainability Bond #4 State of North Rhine-Westphalia
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Providing for the Future Sustainability Bond #4 State of North Rhine-Westphalia
NRW Sustainability Strategy
Implementing the 2030 Agenda at the regional level
• Sustainable Development is a central Access to
education and
guiding principle for the State of NRW. science
Local
• Sustainable development means Environmental
sustainability
responsibility
agenda
integrated environmental, social and
economic development. The concept is Regional,
European and
closely related to the principles of international
Gender
dimension
prevention and inclusion. mainstreaming
• The NRW Sustainability Strategy has been Engaged Inclusion and
citizens social coherence
approved by the State Government in
2016. The Strategy is meant to implement
the global Sustainable Development Goals
(SDGs) at the State level. It also serves as
the political reference for the bond.
2
2030 Agenda for Sustainable Development
Sustainable Development Goals (SDG)
https://sustainabledevelopment.un.org/sdgs
3
Sustainable Development in North Rhine-Westphalia
Fields of Action and Focal Areas
• Climate protection and energy transition • Sustainable consumption /
• Sustainable business management Sustainable lifestyles
• Protection of natural resources: • Land cultivation
biodiversity, woodland, water, land/soil, • Health
air and environment & health • One-world policy and European and
• Demographic change international dimension
• Social cohesion and participation • Gender equality
• Decent work – fair labour • Universal accessibility and inclusion
• Integration • Sustainability in the municipalities
• Sustainable fiscal policy (local agenda)
• Sustainable development of urban • Civic commitment/participation
areas and neighbourhoods • Education and science
• Sustainable mobility
4
Use of Proceeds of Sustainability Bonds NRW
Project categories relate to 10 out of 17 SDG
A. Education and Sustainability Research
B. Inclusion and Social Coherence
C. Public Transport and Local Mobility
D. Climate Protection and Energy Transition
E. Protection of Natural Resources
F. Sustainable Urban Development
G. Modernisation of Educational
and Public Health Facilities
5
Green Bond and Social Bond Principles
ICMA, June 2, 2017
1. Use of Proceeds
2. Process for Project Evaluation and Selection
3. Management of Proceeds
4. Reporting
6
Sustainability Quality of the Bond
Verification and Evaluation
Framework Impact Assessment
• Use of proceeds categories offering • Annual reporting, prepared by
added social or environmental value Wuppertal Institut gGmbH
• Sustainability criteria for each • Focus on avoided greenhouse gas
project category emissions of selected projects
• Extension of analysis to social and
Second Party Opinion education projects under way
• Evaluation of sustainability
performance of financed projects
• Verification of alignment with
Green Bond / Social Bond Principles
7
Process for Project Selection and Evaluation
Comprehensive Pre-Issuance Disclosure
• Projects are selected in accordance with the categories and criteria set out in
the "Sustainability Bond Framework", based on ICMA Green/Social Bond
Principles and Sustainability Bond Guidelines.
• The sustainability performance of all projects has been verified by oekom
research. Second Party Opinion (of February 15, 2018) and Sustainability
Bond Framework are available at www.sustainability-bond.nrw.de.
• All projects are part of the State's discretionary spending of the fiscal year
2017 and can be traced to the NRW 2017 Budget (Haushaltsplan 2017). Only
the State's own expenditures (net of EU grants, federal grants or other
revenues earmarked for specific purposes) are taken into account. The State's
personnel costs as well as projects prescribed by federal law are excluded.
• Full allocation of net proceeds is disclosed pre-issuance. A detailed list of
projects is available at www.sustainability-bond.nrw.de.
8
Management of Proceeds
Funding the public sector
• An amount equivalent to the net issue proceeds of the State Treasury
Notes will be used to cover expenditures of the fiscal year 2017 and will
thereby substitute money market positions.
• The fiscal year 2017 closes on or about the end of the first quarter 2018.
Budget Bond
2017 2018
9
Reporting
Greenhouse Gas Avoidance and Social Impact
• Impact reporting is published on a regular basis. The focus is on avoided
greenhouse gas emissions and on the results of some of the social and
educational projects. The second report, prepared by Wuppertal Institut für
Klima, Umwelt, Energie gGmbH, will be available in early March 2018.
• Progress in the implementation of the State's Sustainability Strategy will be
measured against 60 specific indicators which relate to the 19 fields of
action and to the 17 SDG. The development of the indicators will be
reported every two years. The first Sustainability Indicator Report was
published in 2016. Additional results are published on a dedicated website
with regular update (www.nachhaltigkeitsindikatoren.nrw.de/sdgs).
• The recommendations of the EU Action Plan on sustainable finance due to
be published in March 2018 will be taken into consideration for upcoming
issuances.
10Sustainability Bond # 4 NRW
Allocation of proceeds
Project Category Budget Result Eligible for Bond Use of Proceeds
[EUR m] [EUR m] "social" "green"
A. Education and Sustainability Research 856.3 856.3 856.3
B. Inclusion and Social Coherence 188.3 188.3 188.3
C. Public Transport and Local Mobility 190.2 190.2 40.0 150.2
Climate Protection and Energy
D. 35.7 35.7 35.7
Transition
E. Protection of Natural Resources 90.4 81.4 81.4
F. Sustainable Urban Development 254.1 254.1 127.1 127.1
Modernisation of educational
G. 420.8 420.8 420.8
and public health buildings
Total 2,035.9 2,026.9 1,211.7 815.2
Proportions 100% 60% 40%
11A. Education and Sustainability Research EUR 856.3m
Category A comprises projects financing the enlargement and
improvement of universities and the creation of additional training
facilities at public universities, universities of applied science and
professional schools. Additionally, consumer protection measures
as well as foundational research are funded.
• Enlargement of Universities 769.8m
• Support for Best in Class Universities 23.5m
• Innovation and Sustainable Development 47.7m
• Consumer Protection 15.5m
12Growing Demand for Education
Bund-Länder Covenant for the Expansion of Universities
Expansion of Master's Degrees Programmes
13B. Inclusion and Social Coherence EUR 188.3m
Activities grouped into Category B support the inclusion of
immigrants and people with disabilities. Additionally, projects
addressing early childhood development and successful school
careers are funded.
• Inclusion, Integration and Qualification 83.3m
• Language Skills in Early Childhood Education, 58.1m
Support and Advice for Families
• School Social Work 47.0m
14Working towards an Inclusive Society
Prevention of Unemployment and Homelessness
Initiative Life Without Poverty and Exclusion
15C. Public Transport and Local Mobility EUR 190.2m
Projects in Category C include subsidised public transport for
pupils, students and low-income citizens. Other projects strive to
improve the infrastructure for cyclists and pedestrians, particularly
on short-haul routes (local mobility).
• Public Transportation for Low-Income Citizens 40.0m
• Public Transportation for Pupils and Students 130.0m
• Transportation Infrastructure for Cyclists and Pedestrians 20.2m
16Local Mobility in North Rhine-Westphalia
Optimal Modal Split
Action Plan Local Mobility
17D. Climate Protection and Energy Transition EUR 35.7m
Projects in category D support research and development related
to climate protection and energy transition, including funding for
the State's Efficiency Agency (EFA), which gives advice to
municipalities and companies on how to enhance their resource
efficiency and energy efficiency.
• Climate Protection and Renewable Energies 30.5m
• Resource Efficiency 5.2m
18From Grey to Blue Skies
Climate Protection in an Industrial State
Action Plan Climate Protection NRW
19E. Protection of Natural Resources EUR 81.4m
Projects in category E fund either measures to avoid loss of
biodiversity and to increase population of endangered species or
provide financial support for flood protection projects and the
restoration of the original state of watercourses.
• Protection of Nature, Landscape and Biodiversity 34.8m
• Flood Protection and River Restoration 24.6m
• Responsible Agriculture and Rural Development 21.9m
20Protecting Endangered Species
Wildlife in an Industrial State
Biodiversity Strategy NRW
21F. Sustainable Urban Development EUR 254.1m
Projects in Category F focus on urban and rural areas with
significant structural difficulties such as a shrinking population and
a stagnating economy. The State also sponsors the development of
a fibre optic-based telecommunications infrastructure.
• Urban Reconstruction in the West 43.4m
• Social City 36.3m
• Geriatric Care and Demographic Change 11.9m
• Broadband Expansion 162.5m
22Living with an Industrial Heritage
Urban Development in North Rhine-Westphalia
Urban Reconstruction
23G. Modernisation of Educational and Public Health
Facilities EUR 420.8m
Category G encompasses projects to modernise educational and
public health facilites. A focus is on the modernisation and
extension of university medical clinics. Additional funds are
targeted at the modernisation of general university buildings.
• Modernisation of University Buildings 67.0m
• Modernisation of University Medical Clinics 353.8m
24Caring for Society
Modernisation of University Medical Clinics
Masterplan University Medical Clinic Münster 2025
25Conclusion by oekom research
Second Party Opinion, February 15, 2018
Overall evaluation of Sustainability Bond #4
• The State of NRW has defined a formal concept for its Sustainability Bond
regarding use of proceeds, processes for project evaluation and selection,
management of proceeds and reporting. This concept is in line with the Green
and Social Bond Principles.
• The overall sustainability quality of the eligible projects in terms of
sustainability benefits and risk avoidance and minimisation is good.
• The country, which the issuer forms part of, shows a good sustainability
performance.
Further Recommendations
• Quantitative targets or requirements concerning energy efficiency
improvements for projects in categories F and G.
• Comprehensive environmental standards for projects in categories C, F and G.
26State of North Rhine-Westphalia
Capital Markets Presentation
February 2018Bund and Länder
Cooperative Federalism
Federal System
Germany is a Federal Republic, with two concurrent levels of
government: Federation ("Bund") and States ("Länder").
Responsibilities of the Länder
The Länder have their own legislative, judicial and executive
BERLIN
powers. They are independent with regard to their budgets and
play an active role in the federal legislative process.
Zero Borrowing Rule ("Debt Brake") NRW
The German Constitution sets out that the Länder must eliminate
structural budget deficits by 2020. Since 2016, the Bund must limit
DÜSSELDORF
structural budget deficits to 0.35% of GDP.
Federal Equalisation System
Federal law provides that tax revenues must be shared between
Bund and Länder in an equitable fashion in order to provide equal
standards of living throughout the country.
Allegiance to the Federation ("Bundestreue")
Bund and Länder are under an obligation to share the
administrative tasks and provide mutual assistance, including
financial assistance in cases of extreme budgetary hardship.
28Bund and Länder
Size and Structure of Budgets
Länder (all), EUR 295bn Bund, EUR 325bn
Other
Education Other
16%
27% 17%
Interest Interest Social
8% 13% security
46%
General
purpose General
grants to purpose
municipalities Law grants to
14% enforcement, states
Regional police 7%
public 14%
transport Social welfare Transport Defence etc.
10% 11% 6% 11%
Länder budgets reflect their responsibilities for education, law enforcement
and infrastructure. The federal budget is dominated by expenditures for social
security – health, unemployment and retirement insurance.
29One of the Top 20 Economies worldwide
GDP 2016 [EUR bn]
1800
1,625 71.2 % services
1600 28.4 % industry
1,382 0.4 % agriculture and forestry
1400 1,322
1,275
1200 1,157 1,138
1,114
1000 945
843
775
800 697 670
596 578
600 493 478
400
200
0
0
Russia
Australia
Indonesia
Taiwan
France
NRW
Switzerland
No. 23 …
No. 1-6*
Brazil
Netherlands
Turkey
Canada
Korea
Mexico
Spain
Saudi Arabia
Argentina
*USA, China, Japan, United Kingdom, India, Italy
Sources: IMF April 2017, Statistical Office NRW
30State of North Rhine-Westphalia
Largest German State in Terms of Population and GDP
NRW 2016
Area 34,110 km²
Population 17.9mn
Unemployment Rate 7.7%
GDP EUR 669.7bn
GDP per capita EUR 37,463
Real Growth +1.8%
18 of the largest 50 German companies are headquartered in NRW. The regional
economy has a focus on technology and services, media and health care. It
features more than 750,000 small and medium-sized companies.
31Taxation in Germany
Distribution of Revenues 2016 [EUR bn]
Taxation in Germany is based on federal law.
Federal Taxes
Administration is carried out by the States
EUR 104bn (15%)
through their regional tax offices.
Revenues from Value Added Tax, Income Tax and
Corporate Tax (together, joint taxes) are split
between Bund, Länder and municipalities Municipal Taxes
EUR 65bn (9%)
(e.g. Income Tax: Bund 42.5%, Länder 42.5%,
municipalities 15%).
Länder Taxes
Bund, Länder and municipalities also have EUR 22bn (3%)
exclusive revenue claims in specific areas Import Duties
(e.g. Bund: energy tax, Länder: inheritance tax, EUR 5bn (1%)
municipalities: commercial tax).
Joint Taxes Value Added Tax: EUR 217bn
EUR 509bn (72%) Income Tax: EUR 265bn
Corporate Tax: EUR 27bn
32Federal Equalisation System
Horizontal equalisation worth EUR 19bn in 2016
Constitutional Law demands equal standards of living for all citizens in Germany. In
a four-step process, the federal equalisation scheme provides the necessary
adjustments with regard to the financial capability of the states.
Horizontal Equalisation ("Länderfinanzausgleich")
As a starting point, tax revenues accrue to the
Länder who collect them (local revenue). VAT
Equalisation via VAT EUR 8.3bn
Step 1 revenues are distributed on a per capita basis.
max 25% of revenue in 2016
Before horizontal equalisation, relative
financial capacity of the states ranges from
54.5% to 150.4% of average (2016).
Inter State EUR 10.6bn
Step 2 After horizontal equalisation, relative
Equalisation in 2016
financial capacity ranges from 90.8% to
106.7% of average (in 2016).
3334
-4
-2
0
2
4
2016 - Equalisation via Value Added Tax [EUR bn]
Federal Equalisation System
2.4
Bavaria
2.0
Baden-Wuerttemberg
Payer
1.8
NRW
1.1
Hesse
0.4
Berlin
Hamburg
0.3
Rhineland-Palatinate
0.2
Schleswig-Holstein
0.0
Bremen
0.0
-0.2
Saarland
-0.7
Lower Saxony
Receiver
-0.9
Mecklenburg-Western Pomerania
-0.9
Brandenburg
-1.4
Saxony-Anhalt
-1.4
Thuringia
-2.5
Saxony35
-6
-4
-2
0
2
4
6
2016 - Inter-State Equalisation [EUR bn]
Federal Equalisation System
Bavaria
5.8
Baden-Wuerttemberg
2.5
Payer
Hesse
2.3
Hamburg
0.0
-0.2
Saarland
-0.2
Schleswig-Holstein
-0.4
Rhineland-Palatinate
-0.5
Mecklenburg-Western Pomerania
-0.5
Brandenburg
-0.6
Thuringia
-0.6
Saxony-Anhalt
Receiver
-0.7
Lower Saxony
-0.7
Bremen
-1.1
Saxony
-1.1
NRW
-3.9
Berlin36
-10
10
-8
-6
-4
-2
0
2
4
6
8
2016 - Aggregation of horizontal equalisation [EUR bn]
Federal Equalisation System
8.2
Bavaria
4.6
Baden-Wuerttemberg
Payer
Hesse
3.4
NRW
0.7
Hamburg
0.3
-0.2
Schleswig-Holstein
-0.2
Rhineland-Palatinate
-0.4
Saarland
-0.7
Bremen
-1.4
Lower Saxony
-1.5
Mecklenburg-Western Pomerania
Receiver
-1.6
Brandenburg
-2.0
Saxony-Anhalt
-2.0
Thuringia
-3.5
Saxony
-3.9
BerlinFederal Equalisation System
Federal Grants worth EUR 10bn in 2016
In addition to horizontal equalisation, federal grants provide additional financial
support to create a level playing field among all States.
States with a financial capacity of
Supplementary EUR 4.3bn less than 99.5% of average after
Vertical Equalisation
Step 3
Federal Grants in 2016 horizontal equalisation are entitled
to supplementary federal grants.
Relative financial capacity of all
States falls within a range of 97.5%
to 106.7% of average afterwards.
EUR 5.6bn Special purpose federal grants are
Step 4
Special Purpose
in 2016 not related to financial capacity
Federal Grants
and will be phased out by 2020.
37Reform of the Federal Equalisation System
Estimated effects on 2020 budgets
Schleswig-
Current legislation concerning the Federal Holstein
Equalisation System will expire 31 December, 2019. +EUR 237m Mecklenburg- Western
Bund and Länder have agreed on a reform, taking Pomerania
Hamburg
effect 1 January, 2020. + EUR 387m
+EUR 261m
Bremen
+EUR 494m Brandenburg
Keeping with the constitutional goal of equal
+ EUR 336m
standards of living, the system maintains a high Lower Saxony Saxony- Berlin
level of equalisation, but the technical approach is Anhalt
+EUR 521m
different. North Rhine- +EUR 637m +EUR 483m
Westphalia
Under the new rules, horizontal and vertical +EUR 1,555m
Hesse
Saxony
Thuringia
equalisation (see page 9) will be substituted by a +EUR 604m
+EUR 869m
+EUR 493m
restatement of revenues according to the relative
Rhineland-
financial strengths of Länder and their respective Palatinate
municipalities on a per capita basis. +EUR 386m
Saarland
Due to additional federal grants of around 10.2bn, +EUR 513m Bavaria
all States stand to benefit (see chart). Bremen and +EUR 1,395m
Saarland will receive extraordinary financial Baden-Wurttemberg
support of EUR 400m each (included in figures +EUR 997m
shown).
38Strong Budgetary Performance
Results and Medium Term Planning* [EUR bn]
Budget Size 2018 EUR 74.5bn
Capital Markets Debt 31.12.2017 EUR 139.2bn
2
1
1.1 1.2
0 0
0 0.2
-1.1
-1 -2.3
-1.8
-1.8 -1.5
-3.0 -3.2
-2 -3.7 -1.9
-4.9
-5.6 -3.2
-3
-3.4
-4 -4.3
-4.8
-5
-6.0 budget plan/medium term planning actual figures
-6 -6.6
-7
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
* without provisions for the restructuring of WestLB / Portigon and related liability risks
39Providing for the Future
Pension Fund NRW
With a growing number of retired civil servants, pension expenditures will
continue to rise. A pension fund has been set up to mitigate the fiscal impact.
As of 31 December 2017, the Fund had a size of around EUR 12.0bn.
Pension expenditures of the State of NRW (forecast IT.NRW, in K€)
40Debt Portfolio
Focus on duration
Original Maturities 2015-2017 (EUR bn)
Debt Outstanding 31.12.2017 139.2bn 30
Weighted Average Maturity 8.1 years 25
Median Maturity (fixed/floating) 5.3y/2.8y 20
15
Funding Programme 2018 16-18bn 10
Funded (as of January 31, 2018) 1.1bn 5
0
1-4 y 5-10 y >10 y
Maturity Profile (31.12.2017)
18
16
14
12
10
8
6
4
2
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029-33 2034-38 >2038
41Debt Issuance Programme
Active in 18 different currencies
DIP issuances (since October 2002)
6%
3%
4% • 491 trades
• EUR (equivalent) 71.7bn raised
32%
Debt outstanding (as of 31.12.2017)
55%
• EUR (equivalent) 38.0bn with DIP documentation,
including all foreign currency transactions
(EUR equivalent 14.7bn)
• EUR 101.2bn with stand alone documentation
(thereof certificates of indebtedness: EUR 38.0bn)
EUR USD JPY CHF others
Others: GBP, CAD, NOK, AUD, TRL, HUF, MXN, SEK, PLN, ZAR, ISK, HKD, BRL, NZD
42Recent Benchmark Issues
USD
Emittent Land Nordrhein-Westfalen
Issue Rating Aa1 by Moody‘s, AA- by S&P, AAA by Fitch, all stable outlook
Issue Size USD 1.5bn (equivalent EUR 1.29bn)
Status and Format Global Bearer Note, Reg S
Maturity Date 25 July 2019
Settlement Date 25 July 2017
Coupon 1.625% annually, 30/360
Reoffer Spread +30 bps vs. US Treasury
ISIN XS1650842336
Lead Managers Daiwa, HSBC, Scotia Bank, Société Générale
1%
5%
24%
Geographical Investor
46% 32%
Distribution Distribution
62%
30%
Asia Americas EMEA Central Banks Banks Official Institutions Asset Managers
43Recent Benchmark Issues
EUR
Emittent Land Nordrhein-Westfalen
Issue Rating Aa1 by Moody‘s, AA- by S&P, AAA by Fitch, all stable outlook
Issue Size EUR 2bn
Status and Format Global Bearer Note
Maturity Date 05 February 2022
Settlement Date 05 December 2017
Coupon 0.00% annually act/act ICMA
Reoffer Spread +30.7 bps vs. DBR 0.00% DE0001141760
ISIN DE000NRW0J63
Lead Managers Barclays, Deka Bank, Deutsche Bank, DZ, Nord LB
4%
4%
8%
7%
16%
Geographical 8% Investor
Distribution 45%
Distribution
60%
9%
16%
10%
13%
Germany UK Asia Banks Central Banks
BeNeLux Austria/Suisse Scandics Asset Manager Insurances
other Europe Others
44Recent Benchmark Issues
Sustainability Bond #3
Emittent Land Nordrhein-Westfalen
Issue Rating Aa1 by Moody‘s, AA- by S&P, AAA by Fitch, all stable outlook
Issue Size EUR 1.825bn
Status and Format Global Bearer Note
Maturity Date 16 February 2027
Settlement Date 07 March 2017
Coupon 0.50% annually act/act ICMA
Reoffer Spread +31 bps vs. DBR (DE0001102416)
ISIN DE000NRW0KB3
Lead Managers Bank of America, Citigroup, Crédit Agricole, J.P. Morgan, SEB
3% 1%
9%
4%
6% 11%
Geographical 37% Investor
Distribution 10% Distribution
25% 60%
14%
20%
Germany France UK Banks Asset Manager Central Banks
Austria/Suisse BeNeLux Middle East/Asia Insurances/Funds Corporate
45Stability During the Crisis
Swap Spreads of European Sovereigns vs. German Federal States
Source: iBoxx indices + Commerzbank Research calculation, based on iBoxx data
46State of North Rhine-Westphalia
Key Investment Considerations
Part of a well-positioned and strong economy
Effective fiscal framework
In 2016, first budgetary surplus since 1973
Excellent alternative to Bunds
− comparable credit risk
− attractive yield pick-up
− more flexibility in terms of products
Strong credit ratings
− Fitch: AAA (stable)
− Moody's: Aa1 (stable)
− S & P: AA- (stable)
Sustainability rating (vigeo Eiris)
− In the past 4 years NRW reached the highest score of all German Länder
− Top score "advanced" in 2016
0% risk weighting in most countries
German Federal States issuances qualify as level 1 assets under the EU Commission's Delegate Regulation
on the liquidity coverage ratio (LCR)
47Contact Details
Ministry of Finance, Jägerhofstraße 6, 40479 Düsseldorf, Germany
Axel Bendiek
Treasurer
Phone: +49 - (0)211- 4972 - 2315
E-Mail: axel.bendiek@fm.nrw.de
Dr. Kirsten Häger
Head of Sustainable Finance
Phone: +49 - (0)211- 4972 - 2295
E-Mail: kirsten.haeger@fm.nrw.de
Ursula Kluck
Senior Funding Manager
Phone: +49 - (0)211- 4972 - 2800
E-Mail: ursula.kluck@fm.nrw.de
Johannes Jehmiller
Senior Funding Manager
Phone: +49 - (0)211- 4972 - 2800
E-Mail: johannes.jehmiller@fm.nrw.de
Stefan Wegner
Senior Funding Manager
Phone: +49 - (0)211- 4972 - 2800
E-Mail: stefan.wegner@fm.nrw.de
Oliver Gleich
Funding Manager
Phone: +49 - (0)211- 4972 - 2800
E-Mail: oliver.gleich@fm.nrw.de
48Disclaimer
This document contains neither an offer to sell securities nor an invitation to
submit an offer to buy securities. The information contained herein may be
completed and supplemented at any time; it does not constitute an investment
recommendation nor should it serve as a basis for investment decisions. The
State of North Rhine-Westphalia assumes no responsibility or liability for the
completeness or correctness of the information contained herein.
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