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The Role of Sustainable Bonds

The Role of Sustainable Bonds

  • Wilson Tomás • Research Analyst, Banco BIG Moçambique

Sustainable bonds are debt securities issued by companies or government entities with the specific aim of financing projects or activities that have a positive environmental, social or governance (ESG) impact. These projects are generally aligned with sustainability objectives, such as mitigating climate change, conserving natural resources or promoting social equality, among others.

Sustainable bonds allow issuers to raise financial resources for projects aimed at promoting sustainability, such as renewable energy, energy efficiency, social housing, health, education, among others, while allowing investors who direct their resources towards issuers aligned with their sustainability values and objectives to obtain financial returns.

These bonds are part of the capital market, specifically in the debt securities segment. They can be issued by a wide range of entities, from multinational companies to local governments, and are subject to the financial regulations and reporting standards specific to the market in which they are traded.

These bonds have numerous advantages from various perspectives, such as corporate responsibility, since the resources obtained through sustainable bonds are directed towards projects that benefit the environment and local communities; they guarantee access to capital for the companies and governments that issue these bonds, and can attract specific investors looking for investment opportunities aligned with their values and sustainability criteria; reputation and image, as issuing sustainable bonds can improve a company’s reputation by demonstrating its commitment to environmental and social issues; and finally, portfolio diversification for investors, as sustainable bonds offer a way to diversify their portfolios with assets that have the potential for financial return.

There are various types of sustainable bonds, such as: Green Bonds, Social Bonds, Sustainability Bonds, Sustainability-Linked Bonds, among others.

The funds obtained through sustainable bonds are directed towards projects that benefit the environment and local communities

Green bonds are structured in such a way as to ensure that the funds raised are used transparently and effectively for the proposed environmental projects. They are usually certified by an independent organisation to ensure that they meet certain sustainability and transparency criteria. The value of green bonds issued around the world has increased dramatically in recent years. In 2014, green bonds worth USD 37 billion were issued. In 2021, this figure peaked at approximately USD 582 billion, and decreased slightly in 2022, when green bonds issued totalled USD 487 billion. Among the organisations that have already issued this type of instrument are Apple, Toyota and the World Bank.

Financial tools that also respond to environmental sustainability imperatives

Social bonds channel financial resources into projects that have the potential to improve the living conditions of communities and individuals, as well as promoting equality and social justice. Projects financed by social bonds can include building social housing, funding public health programmes, providing accessible education and creating jobs for marginalised groups. In 2022, the combined value of social bonds issued worldwide reached USD 130 billion. Government-backed entities made the largest contribution, accounting for more than 50 per cent. Financial companies came second, with a value of USD 22 billion and representing less than 20 per cent of the total social bonds issued.

Sustainability bonds are a type of debt security issued by companies, governments or other entities with the aim of financing projects or activities that have a positive impact from both an environmental and social point of view. They combine the principles of green and social bonds, covering a wide range of initiatives that contribute to environmental and social sustainability. Global issuance of sustainability bonds reached around USD 149 billion in 2022, after reaching USD 265 billion the previous year.

Sustainability-linked bonds are an innovative type of debt security that differs from traditional green, social and sustainability bonds due to its unique structure. While traditional sustainability bonds are tied to the financing of specific projects, target-linked bonds are tied to the issuing company’s performance in relation to environmental, social or governance (ESG) metrics.

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Global issuance of sustainable bonds reached around USD 900 billion in 2022, after surpassing one trillion the previous year. Green bonds are the most representative, with around USD 3.007 trillion having been issued by April 2024, according to the Climate Bond Initiative.

In the Mozambican market, there have been external initiatives and incentives to promote activities and investments that take into account environmental impacts, especially in the energy sector. The local capital market does not yet have any listed instruments associated with these initiatives. However, it is time to see the first initiatives emerge. I believe that there is room for this model of instrument to be introduced in our market, since there are initiatives that seek to encourage increasingly rational management of existing resources in Mozambique.


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