Green bonds: Current trend and a smart way for investors to raise capital

One of the most important current trends in the business world is the transformation of the economy towards sustainability. Green and sustainable activities are increasingly becoming the main point of interest for investors and banks who see them as major investment opportunities. This redirection of financial flows towards green activities is facilitated through so-called green bonds and green loans.

How are green bonds different from conventional bonds?

The purpose of green bonds and loans is to support projects aimed at protecting the environment, in particular mitigating or adapting to climate change and achieving climate neutrality. The funds raised through the sale of green bonds are strictly purpose-specific and can only be used to finance projects that meet international green bond standards. This can include energy-saving projects, the construction of passive buildings, the installation of power plants using renewable energy sources, or investments in technologies that substantially reduce the negative impacts of industrial production.

The advantage of green bonds and loans is, among other things, their marketing attractiveness. For example, the 'green bond' label, combined with the argument that finance is invested in sustainable projects, allows issuers to offer investors a lower interest rate, as the sustainability of the project guarantees long-term financial returns for investors.

EU offers investment for sustainable companies

It appears that green bonds and loans will become one of the instruments for companies to attract more European investments in the near future. 

From 2022, the EU Sustainable Activities Taxonomy Regulation and the associated screening criteria for identifying which climate change mitigation activities meet the conditions of the Regulation will come into force. From 2023, large companies will report sustainability data according to the new CSRD and detailed EU reporting standards.

Banks and institutional investors will be required to report the proportion of their investments in sustainable assets under the Taxonomy and certified green bonds as of 1 January 2022. We therefore expect increased interest in this type of investment instruments also from private investors.

"The European Green Deal transforms financial markets and gives a roadmap for investments to ensure the sustainability of the EU economy. Demand for green investments is growing enormously, but companies can only get investments based on the ESG data they provide," said Pavel Franc, CEO of Frank Bold.

Therefore, green bonds are not just a marketing-attractive label, but they are an essential tool for the transformation of corporate strategies into a more sustainable model which is important to attract new business opportunities. This will be reflected both in the Recovery and Resilience Facility package, which offers 30% of this support through green bonds, and in the EU's long-term budget. From this budget, the EU plans to mobilise €500 billion a year for sustainable investments. This strategy is already manifested, for example, in the energy sector in the form of the national Modernisation Funds.

Frank Bold participates in the legislation development

Businesses that can meet these demands will gain a major advantage in terms of access to the capital and reduced costs . For companies that want to be leaders on the market, we are ready to help certify their portfolios and projects, issue a certified bond and communicate these standards to investors.

As coordinator of the Alliance for Corporate Transparency, Frank Bold's experts actively participate in the development of European legislation and are thus up to date on current developments. We regularly publish articles summarising the most important issues on ESG reporting and sustainable finance. Sign-up here to stay up to date.

Recent analysis by the Alliance for Corporate Transparency has shown a very low familiarity of companies with key ESG data they need to track in order to succeed in the upcoming decade (the Alliance assessed the sustainability disclosures of 1000 European corporations in 2019 and later of 300 Central, Eastern and Southern European companies from high risk sectors in 2020, followed by a further research round in 2021).

Based on the results of the research, a proposal was made on how legislation should be improved to make it easier for companies to work with sustainability data and ensure relevant and comparable disclosures, essential for investors' and banks' decision-making. These proposals are reflected in the new CSRD and the forthcoming EU reporting standards.