Green Investment through securities

Михаил Кузьменков Михаил Кузьменков Expert of Center Russia-OECD published in Investments
Green Investment through securities

Nowadays, "responsible" business and investments are becoming more and more popular. In fact, the increase in the number of socially responsible investors has led to the need to create new tools to attract investment. Such an instrument is as called "green" bonds which proceeds are used to fund environment-friendly projects. It differs from ordinary bonds in the way that the money received serve to implement projects related to renewable energy sources, reduction of air pollution and other "green" projects in general. For instance, since 2014, Toyota has attracted funds for the production of vehicles running on alternative fuel through the issuance of green bonds. Another example is the Latvian group of energy companies «Latvenergo» that in 2015 issued green bonds for 75 million euros for a period of 7 years in order to develop alternative energy. To earn a better understanding of green bonds we can refer to the OECD report “Mobilising Bond Markets for a Low-Carbon Transition” green growth means achieving economic growth while reducing emissions of pollutants and greenhouse gases, minimizing waste and improving the efficiency of natural resources. This requires long-term investment and sustainable financing. In fact, State budgets have traditionally been an important source of financing for green infrastructure.

Nevertheless, taking into account the tensions in public finances, there is a need to large-scale private investment to move to a green economy. Hence, the OECD calls for policies to attract private investment and considers that green bonds will be a particularly effective instrument for this purpose. Furthermore, after the emergence of green bonds in 2007-08 in the energy market, the market grew from $ 3 billion in 2011 to $ 95 billion in 2016. Despite the lack of detailed conventional or other international regulation of such bonds, instruments of non-state regulation are often used. Such a tool, for example, is the document of the International Сapital Market Association (ICMA) "The green bond principles 2017". Similar standards exist within the international organization "Climate bonds Initiative", where the standards are divided into sectors (energy, transport, buildings). The use of these principles guarantees investors that the Issuer complies with certain standards set forth in these principles. In many respects, such guarantees exist due to the provision of the recommendation on independent audit, which intend to check compliance with internal standards or procedures declared by the Issuer, i.e., primarily aimed at checking the execution of the provisions of the prospectus "green bonds".

There is still no direct legislative regulation of green bonds in the Russian Federation. However, this does not prevent investors from using appropriate ICMA recommendations in this area. Undoubtedly, the turnover of green bonds is gaining momentum in the global securities market. For example, on the website of the Climate Bonds Initiative international organization, you can find a list of international securities exchanges that feature green bonds. In conclusion, it should be noted that the OECD welcomes the relevant initiatives by States in the field of promotion and regulation of investment through green bonds. Consequently, the question of the introduction of this standard at the European level is on the agenda of the European Union.

Translation by: Boryana Kiskinova