The financial markets are playing a critical role in the transition towards a more sustainable and socially responsible future, primarily due to the issuance of sustainability bonds and green bonds, according to Andreas Poullikkas, the chairman of the Cyprus Energy Regulatory Authority (CERA).
These bonds provide a means to finance new environmentally friendly technologies and projects that contribute to the reduction of carbon dioxide emissions, while also financing social initiatives.
Poullikkas noted that sustainability bonds are a type of bond issued with the goal of financing programs and projects related to sustainability and corporate social responsibility.
This type of bond can include financing for green projects, social projects, human rights-related projects, and other similar initiatives.
“The issuers of sustainability bonds are typically public bodies, large companies, and international organisations,” he said.
“Their issuance has increased in recent years as investors seek to invest in a more sustainable and socially responsible manner,” he added.
Green bonds, he added, are specifically aimed at raising funds to support projects related to curbing climate change and improving environmental sustainability.
Green bonds are similar to sustainability bonds, but their focus is on using the funds raised to support the financing of specific green development projects.
The characteristics of the bond, such as duration, coupon, price, and credit quality of the issuer, are the same as any other bond.
“Green bonds are an important tool for measuring the footprint of climate change in financial markets,” Poullikkas pointed out.
Poullikkas noted that one key difference between green bonds and sustainability bonds and regular bonds is that the money raised by the issuer is intended to finance various green development projects, meaning environmentally friendly investments or business activities or social projects.
This means that these bonds allow various types of issuers, whether they are states or organisations, to activate traditional debt investments in projects or assets that can help society adapt to or mitigate the effects of climate change.
The World Bank has raised over $13 billion through nearly 150 green or sustainability bonds in 20 different currencies to institutional and retail investors around the world.
“More and more international banks are willing to return a portion of the interest costs of the green bonds or sustainability bonds in which they themselves invest because of the environmental sustainability of the related projects,” Poullikkas explained.
What is more, Poullikas stated that green bonds and sustainability bonds offer benefits beyond traditional debt investments.
These bonds can help an investor’s portfolio mitigate the risks associated with climate change, and due to changing economic policies such as carbon taxation, which could lead to stranded assets.
But the primary incremental benefit, he explained, is that green bonds or sustainability bonds provide an impact investment.
Investors in these bonds know that they are directly financing projects that address environmental challenges, and they provide investors with the opportunity to brand themselves as visionaries, innovators, and supporters of sustainable development.
“In addition, green bonds or sustainability bonds are powerful communication tools for issuers,” the CERA chief stated, noting that they provide an opportunity to inform all stakeholders about the impacts and progress made in terms of environmental sustainability.
“States and the public sector can also use these bonds to develop a strategy for public-private partnerships to accelerate the advancement of sustainable technologies and infrastructure for the energy transition,” Poullikkas concluded.