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Commitment> Climate Action 06 Oct 2017

Green bonds: what are they and how do they work?

In a context in which companies are increasingly aware of the importance of sustainability, green bonds have established themselves as a financing alternative. In 2016, more than $87 billion in green bonds were issued worldwide, more than double the $42 billion in 2015. According to estimates by Bloomberg New Energy Finance, in 2017 the volume of green bonds issued globally could reach $123 billion.

A green bond is any type of bond whose funds are applied exclusively to finance or refinance, in part or in full, eligible green projects, whether they be new and/or already existing. The bonds should also be aligned with the Green Bond Principles (GBP), which promote integrity in the green bond market through guidelines that recommend transparency, disclosure and reporting.

As established in the Green Bond Principles and explained in this year’s brochure, a bond can obtain green certification if its funds are applied to one or more of the following categories. The list is indicative and there may be more categories:

  • Renewable energy: including production, transmission, appliances and products.
  • Energy efficiency, such as in new and refurbished buildings, energy storage, district heating, smart grids, appliances and products.
  • Pollution prevention and control: waste water treatment, reduction of air emissions, greenhouse gas control, soil remediation, waste prevention, waste reduction, waste recycling and energy/emission-efficient waste to energy, value added products from waste and remanufacturing, and associated environmental monitoring.
  • Environmentally sustainable management of living natural resources and land use: environmentally sustainable agriculture; environmentally sustainable animal husbandry; climate smart farm inputs such as biological crop protection or drip-irrigation; environmentally sustainable fishery and aquaculture; environmentally-sustainable forestry, including afforestation or reforestation, and preservation or restoration of natural landscapes.
  • Terrestrial and aquatic biodiversity conservation, including the protection of coastal, marine and watershed environments.
  • Clean transportation, such as electric, hybrid, public, rail, nonmotorised, multi-modal transportation, infrastructure for clean energy vehicles and reduction of harmful emissions.
  • Sustainable water and wastewater management, including sustainable infrastructure for clean and/or drinking water, wastewater treatment, sustainable urban drainage systems and river training and other forms of flooding mitigation.
  • Climate change adaptation, including information support systems, such as climate observation and early warning systems.
  • Eco-efficient and/or circular economy adapted products, production technologies and processes, such as development and introduction of environmentally friendlier products, with an eco-label or environmental certification, resource-efficient packaging and distribution.
  • Green buildings which meet regional, national or internationally recognised standards or certifications.
green enegy

BBVA, a leader in sustainable finance

BBVA has the ability and knowledge to provide its clients with superior advisory on sustainable finance solutions, both in loan and bond format, and is playing a key role in the development of this market. BBVA has been the most active Spanish bookrunner in the green bond market in 2016 and is already a leading player in the booming green loan market, having closed different landmark transactions in 2017.

Among other relevant operations, this year BBVA financed the first green loan to a utility company for Iberdrola and the first green loan with a project finance structure – both on a global scale

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