“Currently, a company can issue green bonds dedicated to projects directly linked to the reduction of greenhouse gas emissions and, at the same time, as a company, continue to emit increasing amounts of carbon dioxide (CO2)”, denounces Andrés Sánchez Balcázar, director of global debt at the investment asset manager Pictet AM. This contradiction between supposedly green bonds and the global behavior of the issuer of this debt is possible due to “the lax standards under which this debt market is governed, in which a self-regulation regime prevails,” says Sánchez.
Precisely to regulate the issuance of this debt aimed at financing projects to reduce greenhouse gas emissions, the European Union has reached an agreement in principle for the creation of a European Green Bond Standard (EUGBS). . “A priori, the new standard, although optional, will mean that there is greater clarity regarding the destination of the amounts issued,” says Marcos Eguiguren, director of the chair in Sustainable Finance at the UPF Barcelona School of Management in collaboration with Triodes Bank. “It is the first label of these characteristics that is created in the world. It will be much more demanding than the parameters that are used now”, adds Francisco Javier Garayoa, general director of Spainsif, a non-profit association that promotes sustainable investment.
The application of the European green bond standard will not be immediate and it will also have its drawbacks. Its entry into force is not expected until, at least, from the year 2024 and the experts consulted agree that it will add some complexity to emissions. On the other hand, Eguiguren warns that “given the alignment of the EUGBS with the European taxonomy, there is a danger that bond issues that finance projects to support energy sources based on natural gas or nuclear energy could be considered green.” that, although they enjoyed the ultimate support of the European institutions, they do not have clear support from civil society and many experts”.
The need to regulate this type of debt stems from the great growth it is registering. “It’s a huge market, which has exploded in recent years,” says Pictet AM’s head of global debt. “Since the World Bank made the first issue of green bonds in 2008, the market has evolved a lot,” says Garayoa. According to data from the Spanish Observatory for Sustainable Financing (Ofiso), it has gone from being a global market of close to 50,000 million dollars (47,000 million euros, according to the current exchange rate) in 2015 to exceeding 500,000 million dollars in 2021 (470,000 million euros). “More than half of the issues are in the European Union, which has become a world benchmark in green bonds,” says the CEO of Spainsif.
The money raised with this type of debt, which is issued by both countries and companies, is used to finance investments in renewable energy (40%), sustainable transport (25%) and energy efficiency (15%). According to data from Ofiso, other more minority categories are: water treatment (5%), waste treatment (3%) and biodiversity (1%). Regarding the characteristics of green bonds, Marcos Eguiguren indicates that, “initially, for similar terms and similar issuers, the yields should be similar, however, in the last year, the Bloomberg MSCI Global Green Bond reflects slightly higher than those of traditional fixed debt”.
