Green bonds are a boost to the green transition. In recent years, humans have been facing one of the most serious threats in history. This is global warming and it could bring about the end of planet Earth. Unlike other threats, humans have caused it.
Neither the countries nor the people believed in this problem, but this has been a warning for many years. Massive industrialisation and population growth in recent times have brought about the changes the planet is undergoing. Today, these are much more visible, so there is greater awareness of the issue.
What are green bonds and what are they for?
Countries or companies use these bonds to finance the ecological transition and mitigate the effects of climate change. Therefore, they serve to direct efforts towards a circular economy to protect natural areas and biodiversity.
There have been very few occasions at the global level where countries have agreed on a specific issue. Nonetheless, global warming seems to be the exception. Since 22 April 2016 (the day on which the first countries signed), a total of 195 countries have signed the agreement in which they commit to establish measures to reduce greenhouse gas (GHG) emissions. The main objective was to keep the global average temperature well below 2°C and that it cannot rise above 1.5°C compared to pre-industrial levels.
For the EU this agreement was not enough, as on 17 December 2020 it committed itself to further reductions in emissions and pollution. In this way, it proposed a 55% reduction in greenhouse gas (GHG) emissions by 2030, in line with the European Council’s orientation that has been followed since 11 December 2020.
How green bonds work
In order to reach their targets, European countries have had to make many changes in energy generation and in the environmental regulations they require of companies. In recent years, countries have made large public and private investments in cleaner and more sustainable energy sources.
Although the investments made have been successful, governments have seen the need to further increase investments in this sector. Therefore, many countries and companies have chosen to issue bonds. In this way, the bonds raised will be used solely and exclusively for “green” projects.
Bonds are financial instruments that are issued by companies or governments in order to finance themselves. The issuer pays investors a pre-agreed interest rate for a specified period of time. As a result, they take advantage of the current low interest rates in the market to finance themselves at lower cost.
There are different categories to identify the projects financed:
- Renewable energy
- Energy efficiency (including energy efficient buildings)
- Sustainable waste management
- Sustainable land use (including sustainable forestry and agriculture)
- Biodiversity conservation
- Clean transport
- Sustainable water management (including clean and/or drinking water)
- Adaptation to climate change
Main countries involved in green bond issuance
The leading countries of green bonds are developed countries. Moreover, as of the first term of 2021, most European countries are in the top 10.
|Top countries issuing green bonds:
1. USA: $37.59 billion.
2. Germany: $29.09 billion.
3. France: $23.68 billion.
4. China: $21.97 billion.
5. Spain: $11.69 billion.
6. Netherlands: $11.46 billion.
7. Sweden: $11.13 billion.
8. Italy: $6.05 billion.
9. South Korea: $5.89 billion.
10. United Kingdom: $5.55 billion.
As can be seen, if all countries are added together, EU countries are the main emitters. To this must be added the 12 billion green bonds issued by the EU in order to finance part of the recovery plan from the economic crisis caused by Covid-19.
Companies are also joining in the green bond issue
Countries are not the only issuers of green bonds. Recent years have seen an increase in the number of Spanish companies issuing this type of debt. There are two reasons for this: firstly, to be able to comply with regulatory requirements, and secondly, because some companies want to see consumers associate their brands with environmental commitments.
Among the Spanish companies with the highest number of green bonds issued as of 15 July 2020 are:
- Banco Santander: 1 billion euros.
- BBVA: 1 billion euros.
- Bankinter: 750 million euros.
- Red Eléctrica de España: 700 million euros.
- Iberdrola: 700 million euros.
- Adif-AV: 600 million euros.
As can be seen, this bond issue allowed Telefónica to install thousands of kilometres of fibre optics, providing a higher quality service to its customers. This also made it possible to recycle all the copper removed from previously used internet cables. In addition, Iberdrola issued bonds to invest in new onshore wind farms for wind energy production.
The future of the green transition
Green bonds will gain more weight in the market over time. This is because they have been very beneficial for business and for the environment. In addition, the investors have received very well the bonds. On the other hand, rising prices for CO2 emission allowances will bring companies closer to joining the green transition more quickly.
These instruments often give companies a win-win vision. This enhances their image, as brands show consumers their environmental commitment. At the same time, they are able to improve their infrastructure, technologies, methodology, etc.
It is encouraging to see that so many countries and companies are committed to the cause and that more and more multinational companies are directing their efforts to go beyond the targets set by governments.
It would be good news if green bonds were the impetus to meet the targets as soon as possible, in order to keep the temperature of the planet as close as possible to its natural temperature.
Therefore, it is important that temperature changes are caused by the planet itself and not by mankind’s lack of control and mismanagement. “Poison the river, and it will poison you”. Author unknown.