Green Bonds

| Insights

Green Bonds are financial instruments, more precisely debt instruments, which issuance is linked to projects that have a positive environmental impact: energy efficiency, renewable energy, sustainable management of living natural resources in particular land and water, pollution prevention, waste management, green buildings, and clean transportation.

The First Green Bond on the market was issued by BEI, the European investment bank, on the 4th of July 2007, thanks to Aldo Romano’s insight, the current BEI’s Head of Sustainability Funding. Later, companies, municipals and State agencies have started to issue Green Bonds. Among these, the most important Italian issuers are Enel, IntesaSanpaolo, State Railway and CDP.

The main differences between Green Bonds and traditional bonds, developed by International Capital Market Association (ICMA), concern the following aspects:

  • The eligible project’s selection that has to contribute to environmental sustainability objectives;
  • The management of proceeds, at least once in a year, specifying for which projects are used and which environmental objectives these projects want to satisfy;
  • The proceeds that have to be linked to the selected project: the amount of money should be credited to a sub-account or otherwise tracked by the issuer in an appropriate manner;
  • The reporting activity conducted by an external auditor that certifies documents and objectives.

The market is self-regulated: the issuer of a Green Bond has to respect the ICMA’s principles after the issuance; otherwise, it will be affected in terms of reputation.

The increase in the market of Green Bonds, and its sustainability, is due to two main factors: the entrance in the Green Bond’s market of the emerging countries’ companies (mainly China and India), and the increasing attention to environmental sustainability from the supranational institutions.

Moreover, the Italian Stock Exchange states that “recently the European Commission has highlighted the Green Bond’s market operation and potentiality, introducing a set of measures called “Clean Energy for all the Europeans”, according to which from 2021 it will be necessary an annual injection of 177 billion of euro, in order to reach the 2030 objectives regarding climate and energy, for which Green Bonds will play an essential role.