Banco BPM has priced what it described as Italy's first green Tier 2 subordinated bond, raising EUR 500 million from institutional investors in an 11.5-year non-call 6.5 structure that combines regulatory capital objectives with the group's sustainability commitments. The transaction represents a milestone for the Italian market.
The subordinated notes were issued under Banco BPM's Green, Social and Sustainability Bond Framework, with proceeds earmarked for eligible green assets including renewable energy and green buildings, the bank said in its announcement. The deal is targeted only at institutional investors.
FIRST GREEN TIER 2 FROM ITALY
The 11.5NC6.5 format offers Banco BPM the flexibility of a first call date at 6.5 years, a standard feature of European bank Tier 2 issuance, while the green label makes the transaction a milestone for the Italian market. The call structure aligns with regulatory requirements for the recognition of the notes in the Tier 2 capital base over their expected life.
By becoming the first Italian bank to issue a green Tier 2 bond, according to its own announcement, Banco BPM extends the reach of sustainable finance into subordinated capital instruments, a segment where labelled issuance has historically lagged senior debt. The move sets a benchmark that other Italian banks may look to when considering their own capital planning.
Tier 2 instruments are designed to absorb losses in a resolution scenario, sitting below senior debt in the creditor hierarchy but above Additional Tier 1 and equity. Combining that loss-absorbing role with a green use-of-proceeds structure gives investors an instrument that couples regulatory capital exposure with a defined sustainability contribution.
CAPITAL AND SUSTAINABILITY OBJECTIVES
For Banco BPM, the EUR 500 million deal supports its Tier 2 capital base while directing funds towards renewable energy and green buildings, in line with the eligibility categories set out in its Green, Social and Sustainability Bond Framework. Renewable generation projects and low-carbon real estate are among the priority areas European banks are financing to support decarbonisation.
The framework provides the reference standards for asset selection, allocation and reporting on the group's sustainable bonds, ensuring that green-labelled instruments are backed by transparent processes over the life of the issuance. Investors typically look for such frameworks to be reviewed by external providers to give additional assurance.
The transaction reinforces Banco BPM's positioning in the sustainable capital markets space and marks a step for the wider Italian banking sector, adding a new benchmark for future green subordinated issuance from other domestic lenders. It also gives fixed income investors with sustainability mandates a new subordinated data point on which to base allocation decisions.
By combining a first-of-its-kind label for the Italian market with a benchmark size, Banco BPM's issuance may encourage further green Tier 2 activity across peers, particularly at a time when banks across Europe are seeking to align their capital planning with broader sustainability strategies. The pricing and reception of the deal will be closely studied.
For Banco BPM itself, the transaction adds another labelled instrument to its outstanding stock of sustainable bonds and gives it a reference point in the subordinated segment. The renewable energy and green buildings categories earmarked for the proceeds align with the areas that the group has emphasised in its wider sustainable finance strategy.