1. JPMorgan Currency Deal Highlights Finance's Green Shift; U.S. bank and Italian utility company Enel enter into a green cross-currency basis swap.

Green finance is making tracks into the wonky world of foreign-exchange markets, highlighting the lengths Wall Street will go to broadcast an environmental angle on investments .

JPMorgan Chase & Co. arranged a type of currency-derivative for Italian utility Enel SpA that is linked to both companies' sustainability targets.

Enel raised £500 million, equivalent to $652 million, from the sale of bonds in the U.K. last week. The Italian company handed the British pounds to JPMorgan, which exchanged them for €553 million in a transaction known as a cross-currency basis swap, where one party borrows currency from another and lends its own currency in return.

The bank believes it is the first such structure to incorporate promises both sides have made on the environment.

"We think this swap could very much be a template for other transactions to follow, not just in the swap market, but also in other markets for FX and rates," said Johannes Banner, JPMorgan's head of European corporate foreign exchange and rates sales.

The energy company and the bank will pay interest to each other on the borrowed money every six months. That interest cost can rise if either side doesn't make good on plans they have set to become more environmentally friendly. JPMorgan declined to comment on the specific changes to the expense in the contract should the bank or its client fail to meet their targets. Enel said both parties would face a financial penalty, without giving details.

The deal is the latest example of Wall Street's efforts to tap skyrocketing demand for financial products linked to environmental, social and governance goals , as investors try to do good while also making money. While it is still a tiny corner of the broader market, its rapid growth has caught the attention of some of the world's largest financial institutions.

Flows into so-called ESG funds hit a record in the second quarter of this year, more than doubling from the previous quarter to $54.6 billion, according to Morningstar.

A point of controversy has been that there still aren't regulations to determine what constitutes a sustainable investment . This has led to concerns about whether issuers and investors could be exaggerating their claims about being environmentally friendly or raising money on the back of commitments they would have made anyway, a phenomenon known as greenwashing.

Enel's green targets are linked to the amount of renewable energy it generates. In JPMorgan's case, it is a pledge to help arrange $200 billion of funding this year for climate-change action and the United Nations Sustainable Development Goals, which include activities such as underwriting green bonds .

"Everybody is eager to highlight to investors, to the public, to shareholders that they are doing whatever they can to take part in this space," said Ahmad Chaudry, head of sustainable finance in UBS's global markets business.

He expressed skepticism though about the likelihood of green finance having a meaningful impact in foreign-exchange markets, as currencies typically reflect countrywide economics and it would be challenging to assess the environmental sustainability of one nation versus another.

Jonas Rooze, head of sustainability research at Bloomberg New Energy Finance, said the deal was interesting in that both sides were making a commitment. But he also said it was partly a marketing play.

"It seems unlikely JPMorgan would pick a risky 2020 target to link to," he said, adding, "I do wonder how meaningful the penalty is, if they don't make the targets."

Green cross-currency basis swaps add to a popular area for the sustainable investing known as green bonds , which raise money earmarked for environmental projects. The green-finance industry has grown rapidly and spread into other areas, including loans, mortgage-backed securities and now currency derivatives. About $463.5 billion has been raised through the issuance of sustainable bonds and loans so far this year, according to data from Bloomberg New Energy Finance.

Write to Anna Hirtenstein

 

2. Sara Lee Corporation's Eurobonds

Sara Lee Corp. is serving up a brand name and a shorter maturity than other recent corporate borrowers to entice buyers to its first-ever dollar Eurobonds. The U.S. maker of consumer products, from Sara Lee cheesecake to Hanes pantyhose and Hillshire Farm meats, is selling $100 million in bonds with a 6 percent coupon. These are three-year bonds; other corporate bond sellers including Coca-Cola Co., Unilever NV, and Wal-Mart Stores,Inc., have concentrated on their five-year maturities.

"It is a well-known name and it is bringing paper to a part of the maturity curve where there is not much there," said Noel Dunn of Goldman Sachs International. Goldman Sachs expects to find most buyers in the Swiss retail market, where "high-quality American corporate paper is their favorite buy, " Dunn said.

These are the first bonds out of a $500 million Eurobond program that Sara Lee announced in August 1995, and the proceeds will be used for general corporate purposes, said Jeffrey Smith, a spokesman for the company.

The bond is fairly priced, according to Bloomberg Fair Value analysis, which compared a bond with similar issues available in the market. The bond offers investors a yield of 5.881 percent annually or 5.797 percent semiannually. That is 22 basis points more than they can get on the benchmark five-year U.S. Treasury note.

BFV analysis calculates that the bond is worth $100,145 on a $100,000 bond, compared with the re-offer price of $100,320. Anything within a $500 range on a $100,000 bond more or less than its BFV price is deemed fairly priced. Sara Lee is rated "AA-" by S&P Global Ratings and "A1," one notch lower, by Moody's Investors Service.

In July 1994, Sara Lee's Netherlands division sold 200 million Dutch guilders ($127 million) of three-year bonds at 35 basis points over comparable Netherlands government bonds. In January, its Australian division sold 51 million British pounds ($78 million) of bonds maturing in 2004, to yield 9.43 percent.

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