Green bonds: in a nutshell
Green bonds (GBs), sometimes also referred to as 'Climate bonds', are fixed-income instruments intended to fund projects with a positive climate, societal or environmental impact. They offer a particularly attractive opportunity for investors seeing beyond profits and looking to back sustainable projects. In Europe, the ever-increasing demand in sustainable investing resulted in managers to change the strategy or investment profile of 253 European funds in 2020. In Q1 of 2021, these instruments were issued in 29 currencies and 49 countries. It is evident that Europe is a hot market for green debt.
Climate change and sustainability has been long addressed by many jurisdictions worldwide. In 2019, the president of the European Commission (hereinafter – EC) Ursula von der Leyen set as one of her top priorities to achieve climate neutrality by 2050. This mission is reflected in the European Green Deal, setting forth actions to boost the efficient use of resources by moving to a clean, circular economy, restore biodiversity, cut pollution and decarbonise the economy.1
According to Assessment of Market Practice and Regulatory Policy report published by International Capital Market Association (ICMA), the green debt market experienced significant growth, reaching more than USD159.49 billion in Q3 of 2019. Furthermore, GB supply from corporates and Sub-Sovereign, Supranational and Agency (SSAs) has grown remarkably year-on-year, by 73% and 31% respectively (ICMA, 2019).2
Not surprisingly, GBs are an effective instrument to reduce carbon emissions: a study by the EC's Joint Research Centre showed that carbon emissions of GB issuers are on average 4% lower than those of regular bond issuers.3
Green bond landscape in Malta
During this autumn's seminar on Sustainable Finance, Stephanie Galea, Head of Business Development and Marketing at the Malta Stock Exchange (MSE), talked about promoting ESG investments via listing GBs. Issuers wishing to raise funds for green projects qualify for discounted listing fees as long as they meet MSE's Green List eligibility criteria. Ms Galea stated that in order to qualify for such a listing, investment must be made into environmental projects such as Climate Change Mitigation, Climate Change Adaptation, Pollution Prevention, Sustainable Use of Water and Marine Resources and other projects.4
Specifically, as defined in the Eligibility Criteria of the MFSA's bye-laws, GB issuers must make a substantive contribution to Green Projects with one of the following environmental objectives:
- Climate Change Mitigation;
- Climate Change Adaptation;
- Sustainable and Protection of Water and Marine Resources;
- Transition to a Circular Economy;
- Pollution Prevention and Control;
- Protection and Restoration of Biodiversity and Ecosystems.
Furthermore, GB issuers must ensure to have a management of proceeds policy in place, detailing out the use of generated proceeds as well as the environmental benefits of Green Projects. Funds from Green projects must be kept in a separate account, thus ensuring their traceability. An Accredited External Reviewer must assess and certify the adherence of GBs and Green projects with the relevant requirements.
Entities issuing green bonds in Malta can benefit from 50% discount on MFE listing fees and use up to 25% of proceeds for own operations.
Apart from attracting climate-conscious investors, an issuance of GBs is usually well-received in the public space, thus resulting in a positive recognition and publicity for the issuer, as it clearly demonstrates taking steps in the right direction.
1 A European Green Deal | European Commission
2 An Introductory Overview of the Bond Market
3 Green bonds support carbon emissions reduction, research finds | EU Science Hub (europa.eu)
4 Sustainable Finance - Malta Stock Exchange (borzamalta.com.mt)
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