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Green bonds are the main financial instrument to support the energy transition. According to the industry bible, the Climate Bonds Initiative, $3.25 trillion of green bonds have been issued to date. In particular, since the beginning of 2024, green bonds have reached $432 billion, with a peak of $85.4 billion in May. Therefore, the figures are important.
ICMA formula
In short, green bonds allow the funds raised on the market to be allocated to initiatives related to the environmental transition: from wind or solar power plants to waste recycling plants to green buildings. This is the non-exhaustive list provided by the International Capital Market Association (Icma) document “Green Bond Principles”, which has served as a reference point for companies and countries that have issued green bonds in recent years.
This financial instrument has two main features: restrictions on where the funds collected from investors go, and regular reporting to keep the market updated. However, a second party opinion is optional, i.e. a third-party report that proves how much a company (or country) has achieved with investors’ money.
New to Europe
ICMA is therefore the current market standard. However, there is a new European entry. In fact, Brussels has been working on EU green bond legislation for several years. The result of this work is Regulation 2023/2631, which introduces the European Green Bond (EUGB) and will apply from December 21 this year.
At that point, there will be two big families, with different rules and some decisive differences: Icma Green Bonds are in fact self-regulatory and do not provide sanctions. The only sanctions are those of the market: those who do not comply with these rules lose the trust of investors. Those who choose the path of European Green Bonds adopt a program (framework) with very specific obligations, which also includes a monitoring system and sanctions.
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