Green bonds are a type of debt issued by public or private institutions. Unlike other credit instruments, the funds obtained are specifically destined for the funding or refunding of green projects.
What are green bonds and what are they for?
Green bonds are a type of debt issued by public or private institutions. Unlike other credit instruments, the funds obtained are specifically destined for the funding or refunding of green projects, i.e. projects that are sustainable and socially responsible in areas as diverse as renewable energy, energy efficiency, clean transportation or responsible waste management.
Main uses of the funds from a green bond.
On 5 July 2007, the European Investment Bank (EIB) launched a very special issue for the first time: green bonds. But what are green bonds and why they are so relevant? They can be distinguished by their goal: to fund projects that contribute to achieving the Sustainable Development Goals — number 7 (affordable and non-contaminating energy) and number 13 (Climate action) —.
Iberdrola has its own issue brand, inspired by the criteria established by the International Capital Market Association (ICMA): the Green Bond Principles [PDF]. The core ideas are:
- The funds will be used for green projects with clear sustainability benefits.
- The issuer of a green bond must transparently notify the investors of the environmental sustainability goals, allowing for them to be assessed and externally reviewed.
- The funds management will be appropriately and transparently controlled by the issuer, which will allow an auditor to perform a complementary review.
- The issuer of green bonds will periodically update the information about how the funds are used and the sustainability benefits obtained.
IBERDROLA, A BENCHMARK FOR GREEN BONDS
In 2014, Iberdrola became the first Spanish company to issue a green bond. With a total of 13 green bonds issued as of October 2019, the company is an international model in this type of financing and it was acknowledged by GlobalCapital magazine's Sustainable and Responsible Capital markets Awards in 2016, 2017 and 2018 for being the most impressive corporate issuer of green bonds.
Iberdrola continues to be the world's leading private group in green financing, with 11 billion euros issued via capital markets since April 2014. In 2016, we took out the world's first green loan to be issued to a utility courtesy of BBVA. The latest issue of green bonds was in February 2019, with a hybrid bond of 800 million euros.
The corporation has now successfully completed a total of eleven senior public issues, to which we should also add other green transactions carried out by subsidiaries such as Avangrid* (an Iberdrola subsidiary in the United States), which issued its first green bond in November 2017 for 600 million US dollars and in May 2019 a further green bond, this time for 750 million US dollars, and Neoenergia** (the Brazilian subsidiary), which issued its first green infrastructure debentures in June this year for over 1.2 billion nominal Brazilian reais.
For its part, in April 2018, Iberdrola México, a fully-owned subsidiary of Iberdrola, agreed a green bank loan with a number of international financial institutions for 400 million US dollars, which was used to refinance renewable assets of the company in this country.
The funds obtained through these operations have been devoted to financing or refinancing investments in projects which fulfilled environmental and sustainable development criteria, validated both by Iberdrola and, subsequently, by VigeoEris (an independent entity). These projects are basically framed within the field of renewable energies.
Installation of Andalusia II substation in East Anglia ONE.
Iberdrola has benefited from VigeoEiris as an independent expert when validating the green nature of its funding instruments. VigeoEiris issues its assessment on the issuer, not only with regard to management of the chosen projects, but also to the general environmental and sustainable development commitments which it exercises in the normal running of its activities.
*Avangrid, Inc. is 81,50% owned by Iberdrola, S. A.
**Neoenergia, S.A. is 50% + 1 share indirectly owned by Iberdrola, S.A.