The Green Avalanche: Sustainable Debt Rises

"If there is a future, it will be green." - Petra Kelly

There is a quote I like: “Money is a terrible master, but an excellent servant.”

It is a strong reminder of what money can do when directed to a good cause. And with the urgency of the climate crisis intensifying, there is no better cause than the environment.

I’ve been both cautious and enthusiastic about the recent green wave in the world of finance. A golden rule of finance is pricing expectations; with green policies coming to the forefront, we are witnessing a global shift towards more sustainable investments.

Green finance covers a variety of players – banks, investors, companies looking to find easy access to funds. Structured through bonds and loans, money is flowing towards investments that fulfill environmental requirements of varying impact. 

Loaning green

The sustainable debt market – including green, sustainable and social bonds—reached a cumulative 1.7 trillion US dollars at the end of 2020. The key driver of this massive influx has been green bonds. Since its inception in 2007, the green bond market now stands at an impressive 1.1 trillion dollars. Despite the impact of COVID in 2020, the volume of new green bond issues doubled their 2019 figures.

According to Refinitiv, green bonds quadrupled to a record $131bn in the first quarter of 2021– an all-time high figure with the climate issues dominating the investors’ agenda. Europe is home to the world’s largest green bond market, which has been developed with strong leadership from the EU.

It is clear that green debt is destined to keep rising. The upside to green bond issuance is that companies with sustainable purposes are now accessing capital at a faster rate. If audited and monitored closely, green bonds can finance a wide range of projects that seek to build greener businesses, or to transform the current ones.

At Ar?elik, we have been pursuing a consistent sustainability vision and undergoing a green transformation targeting each area of our operations. In line with this drive, we issued our first green bond last month.

A significant step for the industry, our bond has a nominal value of 350 million Euros, and a five-year maturity; and stands out as Turkey’s first-ever corporate green bond issued in international markets. Strong investor interest in our move is a reaffirmation of our sustainability vision, solid ESG credentials, and investor confidence in our financials.

The use of proceeds from our green finance endeavors will focus on various impact areas that include energy efficiency in products and production, eco-efficient and circular economy products, pollution prevention and control, sustainable water management, green buildings and renewable energy.

We have opened our framework to third party analysis; and ensured that we are ready to take on this new challenge in all its aspects – project selection, reporting and use of proceeds.

The motive behind our move is simple – we want a better future. In order to achieve that, Ar?elik’s focus is and always will be on financing projects that seek to limit the devastating impact we are leaving on the planet every day.

Green regulations are needed

According to the UN Environment Programme, the number of policy and regulatory measures backing green finance has more than doubled since 2015.

Investor sentiment is evolving heavily towards sustainability. Larry Fink, the CEO of Black Rock, recently said that four years ago, his message focusing on environmental purpose received pushback from around 40 percent of his recipients. That number dropped to 10 percent this past year.  

The rules however are still premature. Even with the recent rise in rules and regulations, green bonds – and green finance in general – remain elusive in certain areas. There is a strong need for transparency on all sides. Sustainable reporting, though a rising trend, still hasn’t hit its prime. Investors need to be better informed; and companies better suited to take on green debt.

“Greenwashing” is a real risk. As funding for green projects become more accessible, everyone is looking for ways to fit into these criteria. Regulations and policies demanding transparency can bring relief to investors.

How to keep the future “green”

Green debt and green finance will only continue to get bigger.

Green debt is a great tool of transformation for companies and countries alike. Governments, financial bodies and international organizations should endeavor to come together and follow mutual guidelines. Elusiveness of criteria and reporting should also be abolished.  

Regulations should be inclusive and swift, and protect both the investors, and those seeking capital on truly sustainable aims. Reporting on green projects should be easily accessible, clear and informative.

The financial community is capable of drastic change. If that flexibility and drive can be directed towards greener investments, our planet and our future will benefit from it.  

Yes, money is green; but I can assure you, it can always get greener.