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CEE ‘behind the curve’ on green bonds

By GlobalMarkets
08 May 2019

Climate change may be climbing to the top of the EU and EBRD’s agenda, but the outlook remains clouded in CEE, where green bond issuances remain intermittent. However, countries in emerging Europe are being encouraged to respond to their obligations by using green financial instruments

The use of green financial instruments by emerging European countries remains disappointing despite climate change shooting to the top of the EU and EBRD’s agenda, industry experts warned yesterday (Wednesday).

Of the $589bn of green, social or sustainability-linked bonds ever issued, only $6.1bn or 1% have been from CEE, compared to 4% of vanilla bonds, according to Dealogic data. Of those, four deals from the Republic of Poland account for 70%.

Charlotte Ruhe, managing director for central and south eastern Europe at the EBRD, said: “I don’t agree with some others that these developing countries are ‘just focused on growing their economies’ and therefore not on green — I just think they are behind the curve. But they will get there.”

The EU’s 2030 climate and energy framework aims to reduce greenhouse gas emissions by at least 40% below 1990 levels, while also increasing energy efficiency and the use of renewable energy.

This is expected to increase financing requirements of member states in order to fund sustainable projects. “This is where the green bond comes into play”, said Andrea Diamanti, head of CEE corporate and investment banking and private banking at UniCredit in a panel at the EBRD annual meeting.

The region is lagging behind its emerging market peers, having issued only 40% as much as Latin America or southeast Asia. But some people are confident that the CEE region is on its way to fuller participation in the sustainable and responsible investment (SRI) bond market.

“While CEE issuance is still behind the rest of Europe, the discussions are happening, which is good to see. I’m confident that at least two more countries will issue green bonds by the end of 2020,” said Marko Vukadinovic, head of CEE FIG at UniCredit in the same panel.

Need for clear principles

But there are several obstacles that need to be addressed before CEE borrowers can fully embrace the green bond market. Ruhe said: “One of the key things restricting green bond issuance is how ‘taxonomy’ is defined. There is some work underway on that now in the European parliament. When rules around how we can define certain principles are clearer for market participants, this will facilitate more green bonds.” 

“The second thing restricting growth is size. In the Baltics in particular, we’re working on a pan-Baltic framework. These countries and their banks are not large — combined they have the market size of Slovakia. So, banks can only issue a green bond if they aggregate and get the attention of bigger institutional investors.”

But despite the challenges, more interest is being seen in green bond issuance in the region than in previous years. In 2018 and 2019 so far, the Polish and Lithuanian sovereigns, Lietuvos Energija and the Slovene Export and Development Bank have all issued green bonds.

Vilius Šapoka, minister of finance for Lithuania says: “We are not going to stop. I do believe that in the nearest future, consumers, investors, institutional investors will put far more pressure on seeking for sustainability goals.”

Some bankers are of the opinion that emerging market sovereigns and corporates do not issue green bonds in abundance as they are not as financially solid as their developed counterparts in the West.

Although the issuance outlook remains challenged, market spectators are hopeful that green bond issuance will grow as both borrowers and investors see the business and environmental appeal of these products.

By GlobalMarkets
08 May 2019