What are the prospects for the development of the green bond market in Poland?
According to the European Green Deal, by 2050 Europe is to be the world’s first climate-neutral continent. Financing the transformation of the economy to a low-carbon one requires huge investments, the implementation of which will require the activation of both the government and local government sector, as well as the private sector. An instrument supporting the achievement of the assumed climate goals may be green bonds, the market of which has been developing dynamically in recent years.
In Europe, the volumes of green issues in annual terms have been growing continuously since 2014, and in the years 2014-2020 a total of green bonds with a denomination of PLN 1,747 billion were issued. Poland was the first country in the world to issue green government bonds in 2016 in the amount of EUR 750 million. According to the KPMG report in Poland prepared on behalf of the Ministry of Finance, our market is characterized by significant potential for further development of the issue of green corporate and municipal bonds.
Progressive climate change is one of the biggest challenges facing us today. Limiting further climate change and addressing the resulting risks requires huge investments in the transition of the global economy to a low-carbon one. Financing these investments and achieving the assumed climate goals requires the involvement of not only state governments and the local government sector, but also the mobilization of private funds. Timely fulfillment of the commitments contained in the Paris Agreement, which has been called a breakthrough on a global scale, will require active actions inextricably linked to significant investments for sustainable development, and thus to obtaining financing for these investments. It has been estimated that achieving the climate targets by 2030 will require around €180 billion of investment per year.
In the international policy of combating climate change, the European Union is leading the way, which implements numerous regulatory solutions in this area. Today, the EU has the most ambitious climate targets and at the same time is a leader in their implementation. According to the European Green Deal, by 2050 Europe is to be the world’s first climate-neutral continent. The European Commission’s initiatives point to an increasingly dynamic and concrete effort to increase the financing of sustainable investments and the important role of financial institutions in the planned activities.
Green bonds were issued by the European Investment Bank for the first time in the world in 2007. These instruments initiated the practice of monitoring and reporting the use of funds from emissions for green projects. Since then, the European green bond market has been developing dynamically, and the volumes of green issues in annual terms have been growing continuously since 2014. The cumulative volume of all Green European Emissions since 2014 reached the level of about PLN 1,747 billion in 2020.
The highest growth dynamics in the analyzed period took place in 2017 (increase in the volume of issues y/y by 139%) and 2019 (increase in the volume of issues by 81% y/y). The market growth rate slowed down in 2020 as a result of the turmoil on the financial markets related to the COVID-19 pandemic (increase in the volume of issues by 28% y/y), but in 2021 a return to the path of dynamic increases in the volume of green bond issues was observed – only in the first half of 2021 it reached a level similar to the total volume issued in Europe in 2019. The European green bond market has been developing dynamically in recent years not only in terms of issue volumes, but also entities issuing these instruments – from 31 issuers in 2014 to 226 entities issuing green bonds in 2020.
Poland was the first country in the world to issue green government bonds in 2016 in the amount of EUR 750 million. Since then, a number of other countries have benefited from the Polish experience. In turn, in 2019, the Capital Market Development Strategy was adopted in Poland, which also covers the area of sustainable financing, thus fitting into strategic, global and European initiatives for sustainable development. In this context, the aim of the SRRK is not only to effectively support the financing of the transformation of the economy towards zero emissions by the private sector, but also to use new trends to develop and build competitive advantages of the Polish capital market. In total, there are currently ten issuers of green corporate bonds on the Polish market, including seven issuers from the non-financial sector and three financial institutions.
Issues of green corporate debt in Poland were initiated in 2019 by mortgage banks – when two issues with a total volume of PLN 900 million took place. In 2020, five issues were made, all by non-financial companies. In turn, in 2021 there were five issues, including two pioneering benchmark issues with a volume of EUR 500 million each.
One of the key challenges of the green bond market is to ensure the reliability of the classification of these instruments despite the lack of uniform and legally binding emission standards and project eligibility criteria. Issuers are therefore faced with the need to ensure that the funds raised by them as part of a given issue are actually used to finance or refinance sustainable activities and this will not lead to a risk of greenwashing, i.e. a situation in which, despite declaring a pro-ecological purpose of the issue, the investments and activities financed by this emission do not actually have a positive impact on the environment. The materialisation of greenwashing risk may have negative consequences for the image of the issuer and investors in the context of the credibility of their involvement in investments supporting sustainable development.
One way to increase the credibility of the green bond market is for issuers to voluntarily engage third parties to verify the environmental objectives of a given issue. The most common types of verification on the market are the external opinion of the other party and independent attestation. In the context of the global market, green bonds that were subject to at least one external verification accounted for 89% of eligible instruments in 2020, compared to 82% in 2019. At the same time, investors are increasingly looking for independent evidence of the credibility of green bonds – suggesting a greater awareness of the risks associated with greenwashing. However, from the perspective of issuers, external verification of the greenness of the issue reduces the issuer’s reputation risk associated with the wrong choice of green projects or incorrect allocation of funds from the issue.
Market participants recognize the need to harmonise the legal framework for the issuance of green bonds, the eligibility criteria for the projects financed by them and the disclosures required of issuers. At the EU level, work is underway on a European standard for green bonds, consistent with the adopted classification system for sustainable economic activities, i.e. the EU Taxonomy. Adjusting asset portfolios in response to new transparency requirements for the compliance of investments with taxonomy will be a catalyst for changes in market participants’ investment preferences towards sustainable financial instruments and will contribute to a further increase in the popularity of green bonds.
Projekt otrzymał dofinansowanie z Norwegii poprzez Fundusze Norweskie 2014-2021, w ramach programu „Dialog społeczny – godna praca”.
