Finanssiala ry:n kestävän rahoituksen juristi Aleksi Kaakinen katsoo kameraan.

Green bonds

Green bonds have become important financial instruments. They are also on-trend, as the concern for the climate and the environment is a shared one.

What is the projects’ sustainability based on? 

“The investment is anchored in sustainable development through a specific framework. 

For example, member companies of Finance Finland that issue such green bonds have criteria for which characteristics a product must have in order to qualify as sustainable.

The EU taxonomy is a significant framework. However, companies also have their own criteria for sustainability when applying for funding for things such as their production development projects. 

EUR 800 billion

Companies´ bond issues in the EU totalled around EUR 800 billion in 2023.

The Commission is nevertheless aiming for greater use of the taxonomy in the future. The EU’s so-called Green Bond standard, which is currently being worked on, aims to have 85% of the use of funds in accordance with sustainable development tied to the taxonomy and the remaining 15% to administrative expenses or other sustainability content.”  

How do investors know that projects are truly green? 

“There must always be an external certifier for funding applied for with green bonds. The issuer of the loan, such as a bank or company, has its own criteria, but an external party ensures that the project is certainly in line with sustainable development. In the EU Green Bond standard, the selection of certifiers is supervised by the European Securities and Markets Authority (ESMA).” 

Why are companies issuing green bonds? 

“The main reason is probably simply the demand for sustainable investment products, which leads the market. Trends indicate that sustainability factors and responsibility values are becoming increasingly important. 

There is also a general awareness of the importance of environmental issues and the need to operate this way. However, there must also be some profit to be made. A general argument could be the expansion of the investor base. We are looking for a variety of institutional investors with ethical indicators in use in their own operations. It could also be assumed that sensible investors are already considering the impact of climate change on capital costs. Climate change may not yet be as pronounced in Finland as elsewhere. However, that doesn’t mean it won’t be evident in the future. 

The total annual volume of bonds issued by Finnish companies is currently almost EUR 8 billion. Around EUR 5 billion of these are somehow linked to sustainability.” 

Is greenwashing a problem? 

The risk exists but is mainly a result of an unclear regulatory framework. Reducing the possibility of greenwashing will also be a major issue on the agenda of the new Commission. Finance Finland certainly avoids the possibility of greenwashing to the best of its ability, and the progressive regulation will ensure that uncertainty in interpretations is constantly diminished.

For those attempting greenwashing, the consequences of getting caught could also be quite serious.” 

Aleksi Kaakinen
sustainable finance legal adviser
Finance Finland