Green bonds for implementing sustainable projects
Green bonds are essential for sustainable financing, and Europe is ahead of many other regions in the world in green bond issuance. At the moment, it accounts for roughly half of the global volume.
In recent years, the volume of green bonds issued in Europe has fluctuated around half a billion euros and analysts expect a growth in the coming years. In the Baltic region, green bonds are also becoming an increasingly important topic. The issuances that have taken place have been successful, helping to successfully implement the projects that are important for the environment.
Growth is accelerating
Green bonds are a financial instrument used to finance environmentally and climate-friendly projects and can help companies promote sustainable development and green objectives, according to Edmunds Antufjevs, Head of Investment Banking at Signet Bank. These bonds are one of the main instruments for the development of eco-innovation, or for financing investments related to environmentally sustainable technologies, energy and resource efficiency, as well as environmentally sustainable transport and research infrastructure.
Green bonds differ from traditional bonds in that the proceeds from green bonds are used only to finance environmentally friendly and sustainable projects.
“The total value of sustainable and green bonds in the world in the first half of this year is estimated at €1.7 trillion. There is a clear trend of rapid growth in the issuance of these bonds, with data showing a 130% increase in two years”, says associate Agneta Rumpa. “The fact that a company wants to become more sustainable is becoming increasingly important and will have a growing impact on the availability of finance in general in the future”, forecasts Rumpa, adding that many investors are also increasingly analysing companies when making investment decisions.
Successful examples in Baltics
Currently, the Nasdaq Baltic stock exchange lists green bonds issued by six Baltic companies and a sustainability-linked bond issued by one company. Lithuania has also issued a sovereign green bond. The most active are large state-owned companies, such as Lithiania’s Ignitis with two issues totalling €600 million and Latvia’s Latvenergo with three issues totalling €200 million, as well as green bonds issued by 2 private Lithuanian companies -Auga group and Atsinaujinančios energetikos investicijos. For example, the state-owned development finance institution of Latvia has so far issued green bonds worth €20 million and has financed 44 projects with the allocated green bond financing, with a total contribution to sustainability of 635 tons per€l million allocated.
Altum finances projects in four categories: renewable energy, energy efficiency, green buildings and sustainable transport. “Latvia has huge potential for sustainable green projects. The purpose of using green bond finance instruments is to support environmentally sustainable projects in Latvia, and it is also an opportunity to diversify Altum’s funding base and contribute to the development of the Baltic capital raising market. Green bonds can help to achieve environmental goals, increase the share of renewable energy in total energy consumption and reduce energy imports”, says the Chairman of the Board of Altum Reinis Bērziņš.
AST
A few years ago, the Latvian electricity transmission system operator Augstsprieguma tīkls (AST) also issued green bonds worth €100 million. Investors showed significant interest in the bonds, and the amount subscribed was more than twice the amount issued. According to leva Varakalne, the company’s head of finance and credit, the bond issue was challenging because it required significant and lengthy preparation – meetings with many sides, preparing documents, meeting investors, and so on. The company also applied for an international credit rating from Standard & Poor’s because it allows them to look at themselves from the outside. “Despite the relatively long process, we are highly satisfied with our choice to issue green bonds because there are many benefits from that. Clearly, the requirements improve corporate responsibility, reputation and visibility, as well as ensure that financial resources are available in the future”, emphasizes Varakalne.
Which bonds are considered green?
To be considered green, a bond must fulfil the conditions defined in the European Union (EU) Taxonomy Regulation, Antufjevs explains. That is a science-based classification system developed by the EU for sustainable economic activities in order to meet the EU’s environmental objectives. Proceeds from green bonds can only be used in projects, processes and technologies that have a positive impact on the environment and/or society.
Consequently, only specific sustainable environmental projects that meet the European Green Deal target of zero net greenhouse gas emissions by 2050 are financed. Issuers’ green investment projects are assessed by independent third parties, such as the research centre CICERO, which gives an additional rating indicating the projects’ compliance with longterm environmental protection and climate change mitigation objectives, as well as the company’s good governance and transparency. Issuers are required to list their planned projects in the prospectus in good time, and these projects are evaluated accordingly by third-party representatives.
Companies should regularly provide investors with information on both the use and impact, and publish annual sustainability reports. Green bond issuers are also subject to verification by external assessors who provide an independent assessment of the compliance of green bond investments with certain environmental and sustainability criteria. These third-party assessments confirm that the finances are being used for projects with environmental benefits.
€1.15 billion – the total volume of green/sustainable bonds in the Baltics
72% of this volume is issued by Lithuania
28% of this volume is issued by Latvia
Source: Signet Bank
