Categories: Business

How to make money and help stop global warming

Trading yard of the Madrid Stock Exchange.Vega Alonso del Val / EFE

Airs of ethics run through the world of money and they blow with more force every time. Placing savings in companies or financial assets that promote environmental improvement, seek social purposes or favor the sustainability of the planet is already a requirement of many investors. And they also do not want these improvements to end up as pure marketing actions or that in the meantime green projects to finance, colors closer to gray or black smoke slip through.

The figures show the interest in Spain. As a button, the first issue of the Spanish Treasury of green bonds in September for 5,000 million euros, had a demand of 60,000 million (12 times what was offered). In the first half of 2021, sustainable bonds grew 70% to 15,103 million and of this amount, 8,853 million corresponded to green bonds, with an increase of 70% compared to 2020, according to the Spanish Observatory for Sustainable Financing (Ofiso ).

Banks and energy companies are at the forefront of this trend: the money raised will go to environmental improvements with decarbornisation as one of their main objectives. And these emissions have a great future in Europe, which seeks the neutrality of polluting emissions by 2050. It is also the qualitative leap that the European economies want to make after the stoppage that the covid-19 will have its sustainable seal. Bank of America recalls in a recent report that the European Union plans to start issuing green bonds this fall. The Commission’s goal is for 30% of Next Generation bonds to reactivate economies to be green, which means € 250 billion worth of emissions by 2026. Globally, the appetite for sustainability is also skyrocketing. S&P Global estimates that in 2021 a trillion dollars (850,000 million euros) will be issued in sustainability.

Among the buyers are investment and pension funds that carry this environmental label and whose assets have grown a lot, as a result of the interest of ordinary investors.

The green wash

One risk still to be resolved in this growing debt market is how to avoid being bullied. “The lack of consistency in the labeling of the instruments and the disclosure after the issuance of the targets raised the fear of investors that the sustainability claims made by the issuers could be exaggerated or offer little confidence,” they explain in S&P Global . Even the English term is used greenwashing (green wash) to explain these undesirable practices. This concept was coined by environmentalist Jay Westerveld in 1986 in an essay in which he reported that a hotel was encouraging its customers to reuse towels to help protect the environment, when in reality the request was a marketing tactic to help the hotel to cut costs and improve its profit margins.

“Over time, the definition of green wash has been transformed. While in Jay Westerveld’s example, the environmental benefits were ultimately achieved even though the primary motivation was cost reduction, concerns about greenwashing have become broader in companies ”, they explain from the signing of qualification.

Returning to the 5,000 million launched by the Spanish Treasury, the issue has been carried out in accordance with the Green Bond Framework of the Kingdom of Spain published last July, which has the highest environmental rating granted for a country by the independent verifier Vigeo Eiris (Moody’s group).

And this is where Europe has got to work to prevent green from losing its intensity. The partner of the FinReg law firm, Úrsula García, highlights the proposed European Commission Regulation published on July 6, which seeks to increase the EU’s global leadership in terms of sustainability. A Regulation that is still being processed and that still does not have an expected date of approval, in which the European standard of green bonds for public and private issuers is voluntarily introduced with common criteria, to avoid fraudulent greenwashing.

The main lines include that the term European green bond (EuGB) can only be applied to bonds that pursue environmentally sustainable objectives, according to strict rules (taxonomy). Issuers must evaluate whether the activity, project or asset to be financed contributes substantially to any of the environmental objectives of the taxonomy, does not cause any significant damage to the rest of the defined objectives and is carried out with minimal guarantees.

It will also be necessary to provide transparency with clear metrics to the investments made through annual reports on the allocation of those resources, where the impact they entail is reflected. The issuer must publish these reports free of charge on its website, as well as a before and after the effects of that issue. ESMA, the European stock market supervisor, will keep a record of these issues, may request information and will also have the ability to sanction if the provisions of the issuance brochures or its information obligations are not complied with, among other aspects.

The promissory notes arrive

In addition to their noble purposes, sustainable bonds are also a form of investment that requires security, profitability and liquidity. In a Bank of America report they highlight that they tend to have a slightly higher yield (3 to 5 basis points, that is, 0.03% or 0.05%) than that of normal bonds issued by the same issuer. The Treasury issuance of early September offers an annual coupon of 1% for a term of 20 years, although it was finally placed at a yield of 1.034%.
Last week the launch of green notes instead of bonds was also known for the first time. It is a 100 million euro program from Grenergy that seeks to shorten the term of its financing. It has previously issued green bonds for 50 million euros. From AXA IM they see very interesting for this debt segment: “The initiatives of the issuers that build a green bond curve instead of focusing on a specific maturity are positive.”

Teilor Stone

Teilor Stone has been a reporter on the news desk since 2013. Before that she wrote about young adolescence and family dynamics for Styles and was the legal affairs correspondent for the Metro desk. Before joining The Bobr Times, Teilor Stone worked as a staff writer at the Village Voice and a freelancer for Newsday, The Wall Street Journal, GQ and Mirabella. To get in touch, contact me through my 1-800-268-7116

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