Fifteen years since it launched the world's first green bond, the European Investment Bank (EIB) looks at how green finance became a key concept in Europe.
In 2007, the EIB issued its inaugural Climate Awareness Bond (CAB), instigating a new trend in the landscape of loans and borrowing: the green bond. The novelty of the CAB was its innovative framework that dedicated proceeds towards climate change mitigation projects, while at the same time providing clarity and stability for investors. Furthermore, the Bank began reporting on the allocated projects and their climate impact. In this way, the Bank brought closer the notions of financial growth and sustainability. Since then, in 2018, the Bank introduced Sustainability Awareness Bonds (SABs), which further direct financial capital toward sustainable economic activities.
Scope and Impact
Proceeds from CABs are allocated to projects that contribute substantially to climate change mitigation and their documentation is aligned with evolving EU legislation on sustainable finance, including the EU Taxonomy Regulation. Historically, CABs were focused on renewable energy and energy efficiency. In 2020, CABs were extended for the first time to lending activities beyond renewable energy and energy efficiency.
Meanwhile, SABs extend this approach to further areas of environmental sustainability (other than climate change mitigation) and social sustainability. With SABs, EIB extends its established allocation and reporting practice to cover the full spectrum of sustainability, including, inter alia: pollution control, restoration of biodiverse ecosystems, and universal access to affordable health services.
Together, the two types of bonds - known collectively as green, social, and sustainability (GSS) bonds - have reached a cumulative issuance of around €2.2trn since 2007, highlighting the market relevance of the EIB’s initiative 15 years ago, as well as the growing interest in the sector since then. Of this figure, €1.5tn from green bonds is supplemented by around € 720bn of social and sustainability bonds.
Changing the landscape
In the period 2019-2022, the share of these bonds of EIB’s total issuance has grown from 7% to 27%, reflecting the progressive alignment of the EIB’s sustainability lending with the EU Taxonomy Regulation. This follows a 2016 G20 Green Finance Synthesis Report that highlighted “the lack of clarity as to what constitutes green finance activities and products (such as green loans and green bonds) [which] can be an obstacle for investors, companies and banks seeking to identify opportunities for green investing”.
The global emergence of regulations like the EU Taxonomy, which defines sustainable economic activities, has the potential to enhance clarity for investors. By applying the rules and clarifying which economic activities contribute substantially to sustainability, the GSS bonds also drive the classification of other areas of the economy, helping the transmission of strategic knowledge that will ultimately benefit society at large. The goal of this regulation is to ensure that all future economic activities are mapped across climate, environmental and social objectives, according to consistent sets of criteria.