Green bonds are an interesting alternative source of financing. They serve to finance 'green activities'.
Just like classic bonds, green bonds are debt instruments: companies or organisations that need money for investment issue bonds. Examples may include a company that wishes to install windmills, or an organisation that aims to combat environmental pollution in the third world. The only difference between a classic and a green bond is the purpose of the investments. In case of green bonds, the projects are 'green' in some or other sense.
The loans are granted and the bonds are thus purchased by pension funds or insurers, for example. Major institutional investors were initially a little wary about green bonds, but have systematically increased their exposure.
In practice, green bonds are used to finance projects in three main areas:
- Energy projects with low CO2 emissions, in particular renewable energy, CO2 storage and waste-to-energy projects (in which waste is converted into heat or electricity);
- Projects involving the energy efficiency of buildings, industry and transport;
- Projects involving the environment and land use in areas such as agriculture, forestry, waste management and adaptations to climate change.
The terms 'green bond' and 'climate bond' are sometimes used interchangeably. Climate bonds focus on climate-related projects, including projects for the reduction of CO2 emissions.
The term 'social bonds' is also sometimes mentioned in the same breath as 'green bonds'. Social bonds are used to invest in vaccination programmes, education, health, female entrepreneurship, human rights, working conditions and local projects.
The private sector is now also getting involved
Major international financial organisations set the ball rolling in this regard. In 2007, the European Investment Bank issued the first bonds under the name 'Green Bonds'. The World Bank and the International Finance Corporation followed suit.
Private companies have also recently stepped up. In 2013, for example, French EDF granted a loan of EUR 1.4 billion – the first liquid bond in euros from a major company. And, in 2014, GDF-Suez issued EUR 2.4 billion of green bonds.
Interest in green bonds increases
Since the European Investment Bank issued the first green bonds in 2007, the market has grown 55% a year on average. According to estimates of the Climate Bond Initiative (an international advisory body for investors in green bonds), the total issue volume amounted to EUR 35 billion in 2014 and EUR 88 billion in 2015. That seems a lot, but falls well short of the entire bond market, which amounted to around EUR 88,000 billion in 2014.
The Green Bond Principles
'Green bonds' are products that are still somewhat in their infancy. To date, there is still no cast-iron consensus on what a green bond is precisely. The first step towards remedying that situation was taken in 2014 with the introduction of The Green Bond Principles. These are a series of standards for issuers of green bonds. The standards are supported by a group of international banks and are intended to boost the transparency and credibility of the green bonds market.
The Green Bond Principles define the purposes for which the proceeds of a green bond may be used. They also evaluate and select appropriate projects and provide an independent verification. Put simply, they specify the requirements that projects for renewable energy, energy savings, sustainable waste and water management, environmentally-friendly transport, etc. must meet. For the time being, these are voluntary standards. However, in order to make the market truly ethical, there will need to be clear criteria for investment themes.
Odoo: supporting the growth of a company that’s breaking the mould
Very few Belgian companies can point to the kind of sparkling growth achieved by Odoo, a world leader in business management software for small and medium-sized firms. Underlines Odoo CEO Fabien Pinckaers: “We need a bank with real backbone. We count on BNP Paribas Fortis to support our development.” Watch the video interview.
In the space of barely fifteen years, Odoo has carved out a prime position in its sector. Basing its products and services on open source development, this young company, headquartered in the Walloon Brabant municipality of Ramillies, today does business on several continents and employs over 1,000 people worldwide. Odoo doesn’t do things the same way as other firms – and that includes its approach to banking.
BNP Paribas Fortis recently came up with solutions to two essential requirements for Odoo’s growth: carrying out a restructuring of its shareholder base; and making sizeable real estate investments in local farms in Brabant – one of the hallmark features of the company, which focuses a considerable part of its business there – plus also a major extension project at Louvain-la-Neuve.
"Odoo is a disruptive company that tends to shake up the norms on all fronts. This prompts us to think about our business as bankers,” says Jean-François Pierreux, Odoo’s Relationship Manager at BNP Paribas Fortis. He points out: "The company has a positive attitude. It keeps moving forward, it sees the big picture, and it hires people. It’s also pursuing its impressive growth in spite of the health crisis. So it’s our job as bankers to find innovative solutions to the firm’s financial needs and provide them with real added value.”
Biolectric is achieving growth with its anaerobic digesters
A young Belgian company that installs biogas facilities on farms is growing fast. Here’s how BNP Paribas Fortis is helping its development.
Biolectric is the epitome of the sustainable do-economy: it manufactures and sells anaerobic digesters, which are installed on farms so as to produce ‘green’ energy based on the biogas released from the farm’s own manure. The green heat and power generated from cow dung make the farm an energy-positive business. No less important is the fact that this approach reduces emissions of the powerful greenhouse gas methane by up to 70%. The average Biolectric reduces greenhouse gas emission by an equivalent of 2.000 kilometers driven in an modern car.
The company, which started up in 2011 in the East Flanders municipality of Temse as a typical scale-up, nowadays sells anaerobic digesters to farmers all over Europe.
Biolectric is a fast-growing company. In 2019, in order enable further growth, the bank provided the firm with a series of credit facilities, mostly in the form of a ‘sustainable impact loan’.
Tom De Winter is Biolectric’s contact at BNP Paribas Fortis. He tells us: “The bank has been working with Biolectric since the very beginning, but the relationship has become much closer since 2017. In order to obtain a better grasp of their technology, I’ve visited the firm several times with expert from our Sustainable Business Competence Centre. It’s very important to be able to understand and evaluate the firm’s technical proposition. When Biolectric founder Philippe Jans and industrial investment company Ackermans & van Haaren (AvH) came to talk to us last year about the imminent onboarding of the company by AvH, and the subsequent creation of a new low-threshold business segment, namely the construction of a facility with its own anaerobic digesters so as to be able to sell electricity to farmers in Belgium, the Netherlands and France, we knew straight away that we ought to go along with them on the project.”
“We weren’t the only bank in the running, but the client had clearly chosen us. The coordinated approach of BNP Paribas Fortis and our clear policy of backing sustainable solutions played a big part in that decision,” explains Tom De Winter.
As a pioneer, Biolectric has independently developed compact anaerobic digesters, known as ‘pocket digesters’, specifically designed to turn cattle dung into electricity and heat. Today there are over 200 of the company’s installations operating all over the world. This technology provides Biolectric farmers with a very nice economical as well as ecological return on their investment.
In 2019 Ackermans & van Haaren, which is also a BNP Paribas Fortis client, acquired a 60% stake in the company from Taste Invest, with founder Philippe Jans retaining the remaining 40%. AvH brings its professional management experience to Biolectric, thus strongly boosting the firm’s growth potential.
#StrongerTogether Coronavirus government bonds deliver extra €8 billion
The coronavirus crisis prompted the Belgian Treasury to issue additional debt securities. In just a few days, BNP Paribas Fortis and four other Primary Dealers launched a new government bond on the institutional investment market.
Treasury certificates and government bonds (known as OLOs) are an important source of financing for the Belgian State. They offer investors the possibility to lend money to the country in exchange for periodic interest. At the end of December last year, the Treasury assumed it would have to issue debt securities worth €30 billion in 2020. That would happen via an increase in the number of existing bonds, and through two new OLO transactions.
The corona crisis increased the country’s financial needs significantly. So, at the end of March, the Federal Debt Agency decided to issue additional tenders for the OLOs in circulation. It also immediately halted the repurchase of certain bonds, and raised the issuance target for Treasury certificates.
An additional measure was the issue of a third new government bond: OLO91. “This is a medium-term loan,” says Jean Deboutte, director of the Treasury. “The maturation date is 22 October 2027. With a zero-percent coupon, this bond is neutral for our annual budget.
“We wanted to bring OLO91 to market as quickly as possible. That has happened in a period of just a few days. It is also the largest ever OLO issue: €8 billion. We have attracted investors from 31 different countries, and around one-fifth of the volume comes from non-European buyers. That confirms the worldwide popularity of Belgian government bonds.”
The fast launch of OLO91 is in part thanks to BNP Paribas Fortis. “As a Primary Dealer, we take care of the placement and promotion of the bond among institutional investors,” says Director Debt Capital Markets Stefaan Van Langendonck. “We also reinforce activity and generate liquidity of OLOs and treasury certificates on the secondary market.”
Belgium has 12 primary dealers. They drew up a contract with the Treasury based on the Code of Duties. “BNP Paribas Fortis can rightly consider itself one of the most important intermediaries for Belgian bonds,” says Mr Van Langendonck. “Each year, we are invariably among the top three most active Primary Dealers in the country. Often we are number one.”
#StrongerTogether Lasea decontaminates masks using lasers
Lasea conceives precision laser solutions for high-tech industry. Faced with the coronavirus crisis, the Liège enterprise revived an old project to decontaminate surgical masks – and respond to the shortage of face coverings.
The secret weapon of Lasea is the femtosecond laser. This has an accuracy of 0.2 micron, 200 times smaller than a hair. Lasea’s high-tech equipment is notably used in horology, electronics, medicine and pharmaceuticals. Given the shortage of surgical masks, the Liège enterprise revived an old project for decontaminating, as Lasea CEO Axel Kupisiewicz explains.
“We had tested laser decontamination 20 years ago. At the time, the project had no commercial outlets. With the coronavirus crisis, we proposed using it to decontaminate used surgical masks. That’s how we joined a consortium managed by the University of Liège to develop a decontamination chain. Usually, it takes many months, even years, to carry out the tests and obtain certification. Thanks to the collaboration between the university and the Walloon government, everything was done in a few weeks.”
Reinvention thanks to a crisis
Lasea proposed two decontamination techniques. “For the first, we used a laser device manufactured by Aseptic Technologies from Gembloux, which we adapted to meet local needs,” explains Mr Kupisiewicz. “For the second, we have entered into a partnership with Optec, in Mons. This latter solution makes it possible to treat three or four times as many masks each day.”
Lockdown has also generated a new dynamic within the business. “We launched a brainstorming session to refine the strategy for the coming years. The result: a new organisation after the move to our new building, financed by BNP Paribas Fortis. On the other hand, the widespread use of videoconferencing has created a new dynamic at the heart of the company. Previously, the Belgian team, who were gathered physically on site in Liège, were in a way privileged in meetings with their French, American or Swiss colleagues, present via videoconferencing. Now, everyone is on an equal footing because everyone is behind their screen by themselves. It’s one of the interesting aspects of lockdown that has created a global spirit in an international group.”
A relationship of trust
“BNP Paribas Fortis has been by our side since the beginning, 21 years ago,” recalls Mr Kupisiewicz. “First via the local branch in Sart-Tilman and now, for seven years, via Corporate Banking. Given Lasea’s developments, enlargement to several banks was necessary, but BNP Paribas Fortis remains the primary bank. I place huge importance on personal relationships and a climate of trust. Be it the branch manager or staff at Corporate, our relationship managers know our activities and our products. It’s important: they understand the issues we face and as a result they know our financial needs.”
“Since the beginning of the crisis, the bank has asked if we need support to develop this project of decontaminating masks. We have been able to implement these solutions by redeploying our teams and we have not needed a large injection of capital. We have, on the other hand, welcomed the moratorium on repayment of capital on all our investment credits.”
- Green bonds are still somewhat in their infancy
- Odoo: supporting the growth of a company that’s breaking the mould
- Biolectric is achieving growth with its anaerobic digesters
- #StrongerTogether Coronavirus government bonds deliver extra €8 billion
- #StrongerTogether Lasea decontaminates masks using lasers