What are green bonds?
I Green Bond, or”green bonds“, are financial instruments created with the purpose of raising funds to finance projects aimed at a sustainable development. In other words, they work like traditional bonds, but with a specific constraint: the capital raised must be allocated to sustainable initiatives, such as the improvement of energy efficiency, the production of electricity from renewables or the protection of natural resources.
The birth of green bonds dates back to 2007, when the European Investment Bank (EIB) issued the first green bond, the Climate Awareness Bond. This financial instrument paved the way for a constantly expanding market, responding to the growing need to finance projects with low environmental impact.
In recent years, their use has grown rapidly.
Companies, banks, states and supranational bodies, such as the World Bank, issue green bonds for attract investors pay attention to sustainability, thus reducing the potential cost of financing.
Who issues green bonds?
The figures authorized to issue green bonds have changed over time, adapting to the growing importance of ESG issues and to the global sustainability goals. If initially these instruments were the exclusive prerogative of financial institutions, today the landscape is much wider.
Initially, only large financial institutions and supranational institutions, such as European Investment Bank (EIB) And the World Bank, they could issue green bonds. Their role was fundamental to promote investments in projects with low environmental impact, supporting ecological transition globally.
Over the years, access to the issuance of green bonds has progressively expanded. Even the municipal companies and other public bodies have started using this tool to finance local sustainability interventions, such as the expansion of low-emission public transport, the energy upgrading of buildings and the efficient management of water resources.
This enlargement was also driven by the Sustainable Development Goals (SDGs) OfAgenda 2030, which have reinforced the urgency to allocate capital to the fight against climate change.
Today, more and more private companies are choosing to issue green bonds to finance their sustainable projects. The growth of this market shows how sustainable finance Now it's a key element of corporate and institutional strategies.
The EU Green Bond Standard: new rules for a more transparent market
Given the rapid growth of the green bond market,European Union has decided to introduce a regulation to ensure greater consistency and comparability between green bonds, while reducing the risk of Greenwashing.
This is an advantage both for broadcasters, who can count on a clear regulatory framework, both for investors, who will have more reliable tools to assess the real sustainability of the funded projects.
The Regulation (EU) 2023/2631 Define one voluntary standard developed by European Commission to promote the development of a green bond market solid and creditable.
Published in the Official Journal of the EU on 30 November 2023, the regulation is entered into force December 20, 2023, but its provisions are applicable starting from December 21, 2024.
The goal is to have a more green bond market transparent and resilient, capable of channeling investments to truly sustainable projects, in line with the objectives of European Green Deal and of the transition to more sustainable development.
The 4 key principles of the EU Green Bond Standard
To comply with the EU Green Bond Standard, issuers must comply four basic requirements. Let's see them together.
- Alignment to EU taxonomy
The capital raised through green bonds must be allocated exclusively to projects in line with the EU taxonomy. There is a flexibility of 15% only for sectors not yet covered by Taxonomy and for some specific activities. With the proposal to revise the Taxonomy announced by the European Commission within the Omnibus package, it will be necessary to understand how this point will evolve. - Increased transparency
Issuers must provide detailed reports on the allocation of revenues, ensuring the highest level of transparency. This includes:- a card pre-issue information, which explains how the funds will be used;
- one post-issue report, with details on the capital allocation and the environmental impact of the funded project;
- an pre- and post-issue verification by independent external auditors.
- Independent external review
All green bonds issued according to the EU Standard green bond must be subject to an independent assessment by a external auditor. This step ensures compliance with regulations and effective alignment with the EU Taxonomy. - Supervision by ESMA
The external auditors that certify green bonds must be registered and supervised byEuropean Securities and Markets Authority (ESMA). This guarantees the quality of the audits, the protection of investors and the integrity of the market.
With the introduction of the EU Green Bond Standard, the European Union aims to make the green bond market more trustworthy, transparent and oriented to a real environmental impact, thus consolidating the role of sustainable finance in the ecological transition.
The green bond market in Italy
In Italy, the Green bond market He recorded a significant growth in recent years, driven by the growing attention to sustainable finance.
A key role in this development was played by Italian Stock Exchange, which has promoted information standards aimed at ensuring greater transparency and comparability Between green bonds.
With the expansion of the market, the number of entities authorized to issue green bonds has also increased. If initially these instruments were the prerogative of financial institutions, today even large companies such as ENEL, State Railways and Intesa Sanpaolo have started to issue green bonds to finance sustainability projects.
BTP green vs green bond: what are the differences?
An important innovation on the Italian scene is represented by BTP green, a particular category of Government Bonds related to sustainable finance.
These debt instruments, issued by the Italian government, are intended exclusively for the financing of public expenditures with a positive environmental impact, thus contributing to the country's ecological transition.
The first issue of BTP green dates back to March 3, 2021, with a deadline set at April 30, 2045.
Although green BTPs fall into the larger category of green bonds, they have some fundamental differences. Let's see what they are.
- BTP green
They are a specific type of green bonds issued exclusively by Italian state, through the Ministry of Economy and Finance (MEF). The proceeds collected are allocated solely to public expenditures with a positive environmental impact, such as sustainable infrastructure, energy efficiency and green mobility. - Green Bond
A generic term that indicates bonds issued to finance projects with environmental benefits. They can be issued not only by Govt, but also from financial institutions, private companies Ed local authorities, and the funds raised can finance both public and private projects.
Green bonds: the 5 advantages for companies
Italian companies can use green bonds to finance innovative and sustainable projects, strengthening their competitiveness both nationally and internationally.
Exploiting these tools makes it possible to obtain sustainable financing capable of reduce risks related to climate change, improve the relationship with stakeholders and consolidate its competitive position.
Let's take a closer look at these advantages.
- Better business reputation: demonstrating a concrete commitment to sustainability reinforces the brand image and the trust of customers, partners and institutions.
- Alignment with ESG policies: investment in green bonds demonstrates a concrete commitment to sustainable and responsible practices, responding to the expectations of stakeholders attentive to ESG criteria (Environmental, Social, and Governance).
- Increased trust on the part of stakeholders: a clear commitment to corporate sustainability improves relationships with customers, employees, local communities and institutions.
- Reducing climate and regulatory risks: investing in sustainability helps mitigate the risks deriving from more stringent environmental regulations and the impacts of climate change.
- More advantageous financing conditions: green bonds often offer lower interest rates, thanks to the lower risk profile associated with investments for the ecological transition. This allows companies to access capital at more competitive costs than traditional financing.
