The concept of green bonds emerged as a revolutionary financial instrument to address the urgent need for sustainable development and environmental protection. The first green bond was issued in 2007 by the European Investment Bank (EIB), marking a milestone in the history of sustainable finance [1]. This pioneering effort, known as the “Climate Awareness Bond,” laid the groundwork for the development of a market dedicated to financing projects with clear environmental benefits.
The World Bank followed suit in 2008, issuing its first green bonds, further solidifying the role of these instruments in mobilizing capital for climate-friendly projects [2]. The purpose of green bonds is simple but profound: to channel investment into projects that contribute to environmental sustainability, such as renewable energy, energy efficiency, clean transportation and sustainable water management.
Why all this?
Green bonds are a type of fixed-income instrument specifically designed to raise funds for projects that bring positive environmental benefits. These bonds function similarly to traditional bonds, where the issuer borrows funds from investors and repays them with interest over a specified period of time [3]. The key distinction is in the use of proceeds: green bonds are designed exclusively to finance or refinance projects that contribute to environmental sustainability.
The main feature that distinguishes green bonds from regular bonds is the designated use of the funds [3]. Green bond proceeds must be earmarked for projects with clear environmental benefits. These projects typically include categories such as renewable energy, energy efficiency, pollution prevention and control, sustainable water management, biodiversity conservation and climate change adaptation.
To ensure transparency, disclosure and fairness in the development of the green bond market, the International Capital Market Association (ICMA) has established the Green Bond Principles (GBP) [4]. These voluntary guidelines are based on four basic elements. First, the use of proceeds should be exclusively for green projects. Issuers should also outline the decision-making process they use to determine project eligibility, known as the project evaluation and selection process [4]. Third, net proceeds should be tracked and managed separately to ensure their allocation to green projects, which is known as impact management. Finally, issuers should report annually on the use of impacts, including a list of projects and their expected environmental impact, as part of the reporting component.
Could this be a reason for greenwashing?
To increase credibility, green bonds can be certified by third-party organizations. Certification bodies assess whether bonds meet certain standards, such as the Climate Bonds Standard developed by the Climate Bonds Initiative (CBI) [5]. These standards provide investors with additional assurance about the environmental benefits of the projects being financed.
There are several types of green bonds. Green Use of Proceeds Bonds raise funds for specific green projects and are backed by the entire balance sheet of the issuer [6]. Green Use of Proceeds Bonds allocate proceeds to green projects, but repayment is made solely from the revenue streams generated by those projects. Green Project Bonds provide investors with direct exposure to the green project itself. Green securitized bonds are backed by a portfolio of green projects or assets.
Since its inception, green bonds have gained extraordinary popularity around the world. The market has witnessed explosive growth, with issuances soaring from just $1 billion in 2007 to more than $250 billion in 2020 [7]. This growth reflects the growing recognition of the importance of sustainable investments and the role of green bonds in achieving global climate goals. As of 2023, cumulative green bond issuance has exceeded $1 trillion, underscoring the importance of this instrument in the global financial landscape.
Polenergia’s green bond program
Polenergia, Poland’s largest private energy group, has announced the launch of a Green Bond program. The initiative aims to finance the development, purchase, construction and operation of green projects [8]. Polenergia’s Board of Directors has approved the establishment of this program, and the debt securities issued under this program comply with the Green Bond Principles set forth by the International Capital Market Association (ICMA).
The bonds will be issued in series, bearing interest, with an aggregate maximum nominal value set at one billion zlotys. Polenergia plans to issue the first series of Green Bonds by the end of 2024, which is a significant step toward achieving its sustainability goals.
Strategic importance and future plans
The Green Bonds represent another key step in Polenergia’s strategy to provide financing for renewable energy projects. The company’s portfolio already includes 13 wind farms and five photovoltaic farms with a total capacity of 574 MW [8]. Polenergia is also developing onshore renewables with a capacity of 2,100 MW and offshore wind farms in the Baltic Sea with a capacity of up to 3,000 MW, in partnership with Norway’s Equinor.
In recent months, Polenergia has launched significant projects such as the 44 MW Grabowo Wind Farm and the 45 MWp Strzelino Photovoltaic Farm. Strzelino, located in Pomerania, is the largest photovoltaic farm in the Group’s history [8]. The company has also signed contracts for the construction of another large photovoltaic farms, Szprotawa 1 and 2, with a total capacity of 67 MWp. The Szprotawa 1 project will receive up to PLN 90 million in loans, and the solar power plant is expected to come online in the first quarter of 2025.
Jerzy Zan, president of Polenergia, expressed confidence in the new Green Bonds program, stating: “Green Bonds is a product that fits perfectly with our core mission – building a zero-carbon economy. Polenergia has specialized in developing renewable energy sources for years. There is no more environmentally friendly energy group operating on such a large scale in the Polish market today. I am convinced that Polenergia’s Green Bonds will gain a lot of investor confidence” [8].
Bibliography:
[1] https://www.teraz-srodowisko.pl/aktualnosci/zielone-obligacje-a-raportowanie-ESG-14211.html
[2] https://bibliotekanauki.pl/articles/20874724.pdf
[3] https://www.investopedia.com/terms/g/green-bond.asp
[4] https://www.climatebonds.net/market/best-practice-guidelines
[7] https://www.climatebonds.net/market/explaining-green-bonds
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