Green bonds: a viable way to raise capital

One of the important current trends in the business world is the transformation of the economy towards sustainable activities, which are increasingly becoming the focus of interest for investors and banks. They see them as major investment opportunities. One of the mechanisms behind this trend is so-called green bonds and green loans.

What makes green different from regular?

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 carbon neutrality. The funds raised through the sale of green bonds are strictly earmarked and can only be used to finance projects that meet international green bond standards. This can include energy saving projects, passive buildings, the construction of renewable energy plants 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 the funds are invested in sustainable projects, allows issuers to offer investors a lower interest rate, as the sustainability of the project guarantees a long-term return on the funds for investors.

EU offers investment for sustainable businesses

It appears that green bonds and loans will become one of the tools for companies to attract more European investment in the near future. From 2022, the EU Sustainable Activities Taxonomy Regulation and the associated screening criteria for determining 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 the subsequent detailed EU reporting standards.

Banks and institutional investors will be obliged to report the proportion of investments that go into sustainable assets according to the Taxonomy and certified green bonds from 1 January 2022. We therefore expect increased interest in this type of investment instruments also from private investors.

"Financial markets are being transformed by the Green Deal for Europe, a roadmap for investment to ensure the sustainability of the EU economy. Demand for green investments is growing enormously, but companies can only get investments based on the data they publish in their non-financial reports," said Pavel Franc, CEO of Frank Bold Advokáti.  

Adding to the marketing appeal is the pressure to transform corporate strategies with sustainability in mind to capture business opportunities. This will be reflected both in the Recovery and Resilience Facility, which offers 30% of this support through green bonds, and in the European Union's long-term budget. From this budget, the EU plans to set aside €500 billion a year for sustainable investments. This strategy is already being reflected, for example, in the energy sector through the Modernisation Fund call.

Frank Bold is at the legislative table

Entrepreneurs who can meet these demands will gain a major advantage in terms of access to and cost of capital. For partners who want to be first on the Czech market, we are ready to help with the certification of their portfolio and projects, the issuance of a certified bond and the communication of these standards to investors.

As coordinator of the Alliance for Corporate Transparency, the Frank Bold Expert Group actively participates in the development of legislation within the European Commission and Parliament processes and thus keeps abreast of current developments. We regularly publish articles summarising the most important issues on ESG and non-financial reporting. Sign up here and we will keep you up to date with all the latest news. 

Recent analyses by the Alliance for Corporate Transparency, for example, have shown a very low familiarity of companies with the key data they need to track in order to succeed in the coming decade (it analysed 1,000 European corporations in 2019 and then 300 Central, Eastern and Southern European companies in key sectors for economic transformation from the riskiest European countries, including the Czech Republic, in 2020).

Based on the results of the research, a proposal has been made on how legislation should be improved to make it easier for companies to work with sustainability data and to lead to the disclosure of relevant and comparable information that is essential for investors and banks to make decisions when supporting sustainable activities. These proposals are reflected in the new CSRD Directive and the emerging EU reporting standards.