Monday, 21 may 2018 | Redacción CEU
Climate change, like digital transformation, also works as a transforming lever in the finance world. Global warming and its corresponding struggle and combat have their own reflection in the sector. Green funding is increasingly paving the way in the market. The bet on green bonds and green loans in Spain grows substantially. But, what does this type of funding consist of? What distinguishes it from the rest of traditional financing instruments? Who controls what their color is and how?
Renewable energy, carbon emissions reduction, biodiversity conservation, energy efficiency, sustainable land use, responsible waste management, clean transport, sustainable water management, eco-efficient products or adaptation to climate change are just some of the names that accompany the projects that usually carry the nickname of “green”, in other words, that they are considered respectful with the environment. In recent years, there is a growing trend to bet on the financing of this type of initiatives, especially under the formula of the green bonds. In particular, it is very significant in Spain (in the world ranking this country is in the thirteenth place).
What is different about bonds when they are green?
The so-called green bonds have the goal to finance or refinance, partially or completely, new or existing projects that have a manifest interest in promoting a positive environmental effect. This type of bond does not really differ from the rest except in the adjective that accompanies them and, in principle, its responsible and contributory mission with the environment care. Without taking into account that distinction, they could be well considered in essence as conventional bonds.
We cannot forget that bonds are debt instruments that companies, organizations or public administrations issue in order to obtain financing resources. The issuers of the bond undertake to return to the purchasers of the bonds (bondholders), at a given time, the borrowed money together with periodic interests (coupons). In the case that the bonds are green, in order to go public they need a verification that guarantees that this rating is adequate -something that we will develop below-.
The issuers of these green bonds can be from supranational institutions and governments, to financial entities and companies. In relation to their type of issue, bonds can adopt four financial modalities according to their credit risk coverage:
- Simple: guaranteed by the issuer's financial capacity
- According to incomes: guaranteed by the income flows specified by the issuer
- Project Finance: guaranteed by the cash flow generated by the project
- Titled: guaranteed by the income of a portfolio of projects
In 2017, green bonds reached 160.8 billion dollars (around 136.6 billion euros) globally, a figure that most experts point out that it will increase considerably by the end of 2018, despite the decline experienced in this first trimester. In fact, according to the data provided by the Climate Bonds Initiative (CBI), so far this year, green bonds worth 4,000 million euros have been issued in Spain, this figure almost reaches the total of bonds issued during the past year, 5,000 million euros. Among the main issuers of green bonds of this period we find ACS, Adif Alta Velocidad, the Community of Madrid or BBVA. Other relevant issuers within the national scenario have been Iberdrola, Gas Natural Fenosa or Repsol.