By the first half of 2023, the European Investment Bank had issued €77.7bn in climate and sustainable bonds, according to EIB data provided to Delano. These bonds have not only fostered the development of a global sustainable bond market, but have also acted as a catalyst for true sustainable finance.
EIB’s pioneering role
The EIB has played a pioneering role in the transformative world of green, social and sustainability bonds.
In July 2007, the EIB’s sustainable finance team introduced the world’s very first green bond, known as the climate awareness bond (CAB). Later, in September 2018, they launched the first sustainability awareness bond (SAB).
Both inaugural bonds were listed on the Luxembourg Stock Exchange.
CABs and SABs
CABs target projects that contribute substantially to climate change mitigation. They aim to support projects that reduce greenhouse gas emissions, promote renewable energy, enhance energy efficiency and otherwise support the fight against climate change.
On the other hand, SABs extend the same approach to areas of environmental and social sustainability objectives, other than climate change mitigation, such as projects related to water management, health, education, housing and forestry.
It is worth noting that CABs pioneered a reporting framework that tracks the actual investments made in line with climate objectives, focusing on the impact of investments based on sustainability objectives rather than just the sector.
SABs adopt a similar approach to impact reporting, extending it to cover a broader range of environmental and social sustainability goals.
Together, the reporting framework provides transparency on the use of proceeds, ensuring investments align with specific sustainability objectives.
In June 2023, the EIB issued its first digital CAB of 1bn Swedish kronor (€85.51m), also listed on the Luxembourg Stock Exchange.
As the EIB is headquartered in Luxembourg, the Luxembourg stock exchange has significantly benefited and is home to over 95% of the EIB’s CAB and SAB issuances.
Additionally, it houses the world’s first green exchange, LGX, which serves as a dedicated platform for listing and trading green, social and sustainable (GSS) securities.
Green bonds, including CABs and SABs, have gained significant traction worldwide.
In 2022, CABs and SABs accounted for 45% share of the EIB’s total funding plan, highlighting their importance.
However, their true value transcends mere funding instruments.
These bonds not only provide financial support but also allow investors to track the projects’ environmental and social impact with a higher degree of transparency and accountability.
Furthermore, they play a crucial role in promoting international comparability between markets, fostering cross-border capital flows and reducing uncertainty for market participants.
By doing so, these bonds serve as catalysts for advancing global sustainability goals and driving the transition towards a more sustainable and interconnected world.
The European Union has been at the forefront of sustainable finance, establishing its own common language for the field.
Through the adoption of the EU sustainability taxonomy regulation in 2020, the EU has created a reliable and comparable framework to measure economic activities’ contributions to sustainability objectives.
This regulation has paved the way for consistent standards across various sustainable financial instruments, such as green loans and green bonds.
Moving forward, green, social and sustainability bonds provide sustainable investors with a means to trace the flow of their funds, connecting finance with the real economy.
By gradually aligning with the EU taxonomy regulation, the EIB ensures greater clarity and transparency for its stakeholders, leading the way in implementing EU legislation on sustainable finance.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.