Institutional investors are leading the way on sustainability. „We estimate that almost 20 per cent of assets are already invested with ESG criteria taken into account,“ says Daniel Knoblach, Managing Director of Super Global GmbH. „The proportion is likely to be even higher for green bonds, as many investors have established a mandatory ESG quota and need to meet it.“
The influence of ESG on institutional capital investment is constantly growing, and the consideration of environmental criteria, social standards, and governance aspects has become one of the most important priorities for institutional investors. „We are implementing" Green bonds “for all areas of the ESG spectrum and are observing a very strong interest, particularly from investors,„ says Knoblach. “As a rule, the volume is reached shortly after the issue."
Even smaller green bonds of up to 50 million are currently being absorbed very quickly by the market. „It is important for institutional investors not to let their quotas become a concentration risk,“ says Knoblach. „Therefore, stakes in smaller bonds are often mixed in.“ Currently, demand is significantly stronger than supply in this area.
The fact that Green Bonds have become a success story is also due to them being designed attractively by lawmakers: „Financial instruments that raise capital for the reduction or avoidance of climate or environmental damage are treated preferentially,“ says Knoblach. „This includes, for example, financial institutions that buy Green Bonds having to hold less equity against them.“
Free and non-binding
„To prevent greenwashing, our green bonds are audited by an independent body (SPO),“ says Knoblach. This allows investors to focus on audited investments in what is still a limited market. However, even these second-party opinion providers, mainly ESG rating agencies, have limited capacity. „The backlog of demand will decrease in the next three to four years,“ says Knoblach. „By then, capacity will have expanded at the ESG rating agencies too.“
However, the backlog will not be resolved immediately. „Many institutional investors have set ESG quotas for themselves,“ says Knoblach. „These are generally not static, but increase over the years.“ This is intended to ensure that companies achieve their sustainability goals by a specified date.
The high demand is helpful for the issuers of green bonds. This also achieves the EU's goal of promoting innovation and courage in the sustainable transformation of the economy. Projects in green infrastructure, renewable energy, or even social projects are made possible by capital from the private sector.
The form of issuance allows for many variations. Alongside simple fixed or floating-rate bonds or asset-backed securities, securitisations are currently coming into focus. The creditworthiness of green bonds in their classic bond form depends directly on the creditworthiness of the issuer – and not on the project itself. Green bonds, which are issued, for example, as bearer bonds, are more closely linked to the success of the projects. In this form, the investor bears part of the project risk – but is also usually rewarded with more attractive coupons.
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