The government of Spain has just placed the first ecological public debt issuance in its history with a demand that exceeded supply by 11 times and that highlights the investor appetite and the vertiginous growth of the green bond market, with which it will be financed also in a few weeks part of the EU’s ambitious recovery program.
The ECB criticizes the ‘greenwashing’ in the financial system and questions the effectiveness of green bonds
With a cost between two and three basis points lower than that of a traditional bond (advantages of green), the department headed by Carlos San Basilio has borrowed 5,000 million euros from some 400 institutional investors over a 20-year term under the promise of use the funds to finance public programs with environmental objectives.
The “green bonds” are fixed income securities that, under sustainability criteria, are intended to finance actions with environmental and / or climate benefits in areas ranging from the promotion of renewable energies or clean transport to sustainable water management .
The demand for these assets due to their contribution to a common global objective allows saving costs, with a ‘greenium’ (instead of premium which is traditionally used in English to illustrate the interest margin) lower than that of a traditional debt issue.
Much of the green bonds comes from Europe, where governments and the European Union have become key players. Eleven European countries have already launched their green bonds and the European Commission has announced that it expects to place its first sustainable pan-European bond in October as part of the financing of the historic Recovery Plan for Europe.
The European authority intends that green bonds cover 30% of the 800,000 million euros of debt that will finance its “Marshall plan”. The Kingdom of Spain’s issuance is part of a National Sustainable Finance Plan with which the government seeks greater involvement of the banking system and the private sector to ensure “adaptation to climate neutrality”.
“Improve the competitiveness of the Spanish financial sector, taking advantage of the opportunities that sustainable finance offers for the creation of value in the medium and long term” and “promote the reorientation of capital flows towards a low-carbon and more sustainable economy and investments” are the bases of the aforementioned plan.
From zero to one hundred
The first green bond was issued in 2007 by the European Investment Bank. Over the next decade, this type of asset was almost an eccentricity and accounted for only a small portion of the bond market, with issues coming mainly from government agencies and development banks. But since 2016, coinciding with an “awareness” of the investment community, the market has experienced an exponential increase. According to data from Climate Bond Initiative, the issuance of green bonds reached a record of 290,000 million dollars in 2020 and predictably will be around half a trillion new issues throughout this 2021, with an outstanding balance of 1.4 trillion dollars.
The social conscience of corporations and investors – and their image in front of society and consumers – is behind this boom in socially responsible debt issues, which has been driven by the awareness of “existential threats” posed by the pandemic and for the growing global commitment to the UN Sustainable Development Goals.
A few years ago, balance sheets, default risks, returns and the future of the business were the bases on which an investment was based, but in recent times a growing culture of social responsibility has been implemented – now redefined under the acronym ESG (Environment, Social and Governance for its acronym in English) – which has raised awareness to investment houses and entities.
While governments try to agree on the measurement and regulation of the sustainable actions of companies, many managers, funds, insurers … expressly commit themselves to making responsible investments.
Three years ago, the president of Blackstone, the world’s largest manager with more than $ 600 billion under management, warned for the first time in his annual letter to listed executives about the need to integrate purpose and sustainability into corporate discourse. . Since then it has been hardening its message to ensure that its analysts study in depth the social objectives of the companies in which they invest.
According to data from Global Sustainable Investment Alliance, investments in assets with sustainable criteria exceeded 35.3 trillion dollars at the beginning of 2020. Between regulation to discourage investment in polluting companies and strong demand for sustainable securities, investors are becoming a shaker of the consciences of companies and governments.