Izdanje Srbija
Serbische Ausgabe
Izdanje BiH
Izdanje Crna Gora
News
Green bonds have arrived on the BiH market - What are they for, what are the risks and potentials?
Source: eKapija
Tuesday, 16.04.2024.
22:08
Tuesday, 16.04.2024.
22:08
Comments
(Photo: Freepik)
Can the BiH financial market strengthen green projects? As in numerous other environmental issues, basically everyone, both government and business representatives and civil associations with a big "YES" support the green transition, environmental protection, improvement of energy efficiency and the like. And even more often, when it comes to the realization, somehow all those wishes seem to hit the wall, and things slowly move for the better.
In such circumstances, the main question, in popular terms, is "how to find money for something that does not directly bring money"? How to persuade the economic sector, as well as the public sector, to redirect part of the resources into the integration of green business postulates but not only in theory but also in practice, to reduce the total emission of carbon dioxide and to provide, within the limits of their capabilities, a contribution to a healthier environment for the generations behind us.
In that process, new forms of financing appeared, which are still shyly entering the domestic financial market. Among them, green bonds are gaining special popularity.
Beginnings of green bonds
The green bond market in Bosnia and Herzegovina practically began to exist last year when Naša banka issued the first such bonds on the Banja Luka Stock Exchange. Not long after, in February of this year, they aired another show. After the successful first issue, Naša banka decided to buy back green bonds early in order to carry out the procedure of the second issue through a public offering. In the second issue, 42,000 bonds with a total nominal value of 4.2 million KM were issued on the Banja Luka Stock Exchange.
As Ph.D. sc. Emira Kozarević, full professor of the Faculty of Economics of the University of Tuzla, states for eKapija, it is necessary to point out that Naša banka is a credit institution and, in addition, in the issue of green bonds, it determined that the funds will be intended for green credit placements for legal and natural persons, under predetermined conditions.
- Therefore, funds from the issue of green bonds will represent sources of financing for other market participants. Therefore, the issuance of green bonds by credit institutions encourages the development of green financing practices and other green financial instruments. Here, the role of banks as key suppliers of capital in the conditions of a bank-centric financial system, as it is present in BiH, is changing. It is precisely this bankocentricity that shows us that bank products, in the form of loans, are the most common source of financing for the economic, i.e. corporate, sector, while issues of corporate bonds in Bosnia and Herzegovina very little represented in the capital market - emphasizes Kozarević.
(Emira Kozarević)
She explains that in 2007, the European Investment Bank issued the first green bond called the Climate Awareness Bond (CAB) worth EUR 600 million, with the aim of encouraging the development of renewable energy and energy effectiveness, the market actors were not sufficiently informed about its importance.
- However, this did not prevent further development of the green bond market worldwide. We are witnessing a similar scenario in BH. capital market, where the issuance of ESG bonds created, in the sense of the previous terminology, the green bond market in Bosnia and Herzegovina.
The President of the Management Board of Naša Banka, Dejan Vuklišević, tells eKapija that the first issue of ESG bonds has been successfully completed and is in line with their expectations, bearing in mind that Naša Banka was the first in the region to issue this type of debt paper.
- The public received this activity positively, there was an enviable interest in the bond itself, as well as in other benefits that are correlated with this type of work.
In addition, Naša Banka has started the process of the second issue of ESG bonds, which in itself is an indicator of our positive expectations, as well as the continued development of the Bank in this business model.
We are not currently considering launching a new, next bond issue on our market according to the model of the first two. In the further consideration of the Bank is the implementation of everything that represents the ESG model of business, raising such a model to a higher level and then opening such business activities in new markets - Vuklišević points out.
Miloš Grujić, a professor from the Independent University in Banja Luka, with hundreds of published professional and scientific works, states to eKapija that the issue of green bonds by Naša Banka represents an important step in the development of green financing in BiH.
- It shows that there is interest and potential for this type of investment. As for government green bonds, I believe that it would be a logical step in development, considering global trends and the need for sustainable development. This will certainly be discussed in the future - says Grujić and adds that the green bond market in BiH is in the early stages of development, but shows promising signs of growth.
Milan Božić, director of the Banja Luka Stock Exchange, believes that the importance of green bonds will grow along with the implementation of sustainable business principles.
- At the moment, not enough attention is paid to sustainable business in Bosnia and Herzegovina, but the situation could change significantly in the near future. Recently, the "ESG Guide for companies from Republika Srpska that are not listed on the stock exchange" was presented at a conference in Banja Luka. The guide provides a clear framework for compliance with regulatory requirements and market expectations. It also contains a segment dedicated to ESG reporting and includes practical advice and tools that can be used to identify opportunities for business improvement. The conference was organized by the Association of Employers and Associations We work together with the support of the European Union. The implementation of ESG principles will be increasingly insisted on, because a delay could cause a significant increase in business costs based on the carbon footprint - Božić said.
How ready is the Bosnia and Herzegovina market for green bonds?
The persistence of the interest of the economy, population and financial institutions for ESG (acronym for environment, society and corporate governance) in BiH is inevitable, but the problem, as eKapija interlocutors say, lies in the underdevelopment of the use of market forms of financing sources, in this particular case bonds as securities.
(Muhamed Ibrić)
- Therefore, we should talk about readiness for bond issues in general, and then green bonds. The reason for the above lies in the fact that green bonds are similar to conventional bonds in terms of their characteristics. The difference is reflected in the method and purpose of the issue. Sectors that issue bonds in Bosnia and Herzegovina. the capital market, the Sarajevo and Banja Luka Stock Exchanges, are predominantly in the initial phase of the green transition. It should be noted that the financial system, especially the banking sector, is the most interested in ESG issues, as evidenced by unofficial reports and statements by banks that indicate orientation towards ESG practices. This is additionally encouraged by the guidelines of entity banking agencies, which emphasize the importance of environmental and social risk management.
There is often an identification and misunderstanding of the differences in green and ESG bonds, as well as the regulatory framework governing these issues. The difference lies in the coverage. Green bonds are used to finance projects primarily related to the environment, i.e. the now well-known "E" (eng. environment) in non-financial parameters better known as ESG. Practice has shown that green bonds are the most popular bonds associated with ESG requirements. However, there are also social bonds, which support projects with a positive social impact, and sustainable bonds, which include both social and environmental impact - tells us Muhamed Ibrić, MA, assistant at the Faculty of Economics of the University of Tuzla, who obtained his MA on the subject "Effects of environmental taxes on total green factor productivity in the countries of the European Union and the Western Balkans".
Grujić believes that the state of green financing in Bosnia and Herzegovina is still in its infancy, but that we have a lot of potential for growth.
- Positive signals, such as the listed projects, indicate interest and willingness to develop green financial instruments. The general public is aware that numerous green infrastructure projects are being considered in the country, which could have a significant impact on raising awareness of sustainable development and creating new investment opportunities. For example, there are ideas and plans to build wind farms that could increase the production of renewable energy and reduce harmful gas emissions. Also, projects are being considered for the installation of solar panels that would take advantage of the abundant solar radiation in some parts of Bosnia and Herzegovina. In addition, plans for improving energy efficiency in public buildings, such as schools, hospitals and administrative buildings are also mentioned - Grujić points out.
The surrounding countries were pioneers in issuing green government bonds. The first bond of this type was issued by Serbia in 2021 in the amount of one billion euros, with a maturity of seven years, and the entire issue was carried out on the London Stock Exchange. On the other hand, green municipal bonds were issued in some countries, e.g. the cities of Zagreb and Prilep.
- Given that international regulations are increasingly being adopted into national regulations, the appearance of corporate and state ESG bonds on the Bosnian capital market is certainly expected in the future. Therefore, we believe that the development of the Bosnian green bond market will enter a new phase with the appearance of corporate and state green bonds - Ibrić adds.
Economy and green transition
Different business entities perceive the importance of investing in green projects in different ways. This is, on the one hand, conditioned by the nature of the business, and on the other hand, by the company`s orientation in terms of market entry (domestic market or export).
- It is becoming evident that companies oriented to the export of products will be more motivated to invest in green projects than companies oriented to the domestic market. In this sense, the majority of companies exporting to the EU are involved in hierarchical value chain relationships controlled by foreign consumers and companies, especially from the EU. The latter is particularly pronounced in the dominant export sectors in Bosnia and Herzegovina, among which the energy and processing industries, such as metal and wood, are highlighted.
Such inclusiveness in global value chains generates numerous challenges, such as: the need for technology modernization, material efficiency, digitization of production processes and greening of production. The latter will require an integrated approach to environmental management practices, increased waste management and recycling, as well as reuse in the manufacturing process.
- Positive signals, such as the listed projects, indicate interest and willingness to develop green financial instruments. The general public is aware that numerous green infrastructure projects are being considered in the country, which could have a significant impact on raising awareness of sustainable development and creating new investment opportunities. For example, there are ideas and plans to build wind farms that could increase the production of renewable energy and reduce harmful gas emissions. Also, projects are being considered for the installation of solar panels that would take advantage of the abundant solar radiation in some parts of Bosnia and Herzegovina. In addition, plans for improving energy efficiency in public buildings, such as schools, hospitals and administrative buildings are also mentioned - Grujić points out.
The surrounding countries were pioneers in issuing green government bonds. The first bond of this type was issued by Serbia in 2021 in the amount of one billion euros, with a maturity of seven years, and the entire issue was carried out on the London Stock Exchange. On the other hand, green municipal bonds were issued in some countries, e.g. the cities of Zagreb and Prilep.
- Given that international regulations are increasingly being adopted into national regulations, the appearance of corporate and state ESG bonds on the Bosnian capital market is certainly expected in the future. Therefore, we believe that the development of the Bosnian green bond market will enter a new phase with the appearance of corporate and state green bonds - Ibrić adds.
Economy and green transition
Different business entities perceive the importance of investing in green projects in different ways. This is, on the one hand, conditioned by the nature of the business, and on the other hand, by the company`s orientation in terms of market entry (domestic market or export).
- It is becoming evident that companies oriented to the export of products will be more motivated to invest in green projects than companies oriented to the domestic market. In this sense, the majority of companies exporting to the EU are involved in hierarchical value chain relationships controlled by foreign consumers and companies, especially from the EU. The latter is particularly pronounced in the dominant export sectors in Bosnia and Herzegovina, among which the energy and processing industries, such as metal and wood, are highlighted.
Such inclusiveness in global value chains generates numerous challenges, such as: the need for technology modernization, material efficiency, digitization of production processes and greening of production. The latter will require an integrated approach to environmental management practices, increased waste management and recycling, as well as reuse in the manufacturing process.
The energy sector is particularly exposed to challenges in terms of its need for energy transformation. According to statistical data, Bosnia and Herzegovina is the leader among the countries of the Western Balkans in terms of electricity exports. However, inefficient and outdated electricity generation processes that produce very high levels of carbon dioxide (CO2), due to expected high EU export taxes (eg CBAM or carbon border adjustment mechanism) could soon become unprofitable, causing a decrease in revenues for companies in this sector, most of which are state owned. The decrease in income from the export of electricity will additionally be accompanied by an increase in expenses arising from investments in the infrastructure of the energy system. It is very likely that the solution will be found in the increase in the price of electricity on the domestic market, which manifests itself in all other sectors, in which the transition from oil derivatives to electricity is largely a strategy of green transition - explains Emira Kozarević for eKapija.
Grujić states that, although there are still not many domestic companies that actively invest in green projects, a growing interest in sustainability and environmental protection is being noticed.
- It is expected that global trends towards sustainable business and increasing awareness of environmental issues will encourage more companies in Bosnia and Herzegovina to recognize the potential of green projects. As the implementation of these projects expands, it is expected that the number of green bond issues will also increase, which will have a positive impact on the capital market and sustainable development of the country - Grujić points out for eKapija.
- But it should be borne in mind that the initial phase of the green transition requires the engagement of not only the private sector but also the public sector, especially when it comes to small and medium-sized enterprises - Ibrići tells eKapija and adds that the importance of a strategic approach to the green transition in Bosnia and Herzegovina should be emphasized.
Božić points out that green bonds are primarily related to corporations that must introduce sustainable business principles.
- But state institutions could also use concrete examples to show that they care about the environment by reducing unnecessary costs through the digitization of business operations.
Are there any risks?
Green bonds carry different risks, both common and specific. Common risks include credit risk, reputational risk, liquidity risk and interest rate risk. Specific risks include project risk, regulatory change risk, lack of knowledge, potential for greenwashing, and limited investment options.
Miloš Grujić (Photo: Siniša Pašalić)
- In turn, the lack of data on green bonds makes it difficult to assess credit risk, and projects financed by green bonds may be risky and not bring the expected income. Second, the integrity of the issuer may be called into question, affecting its reputation, which will increase the cost of borrowing or jeopardize repayment. In addition, the lack of commonly accepted standards for green bonds can lead to "misrepresentation of sustainability". Greenwashing is a concept in which, with the help of "green" marketing and PR activities, an attempt is made to promote an organization as environmentally conscious and socially responsible, even though it is not. In order to alleviate concerns due to the prevalence of "greenwashing" and investor fraud in the green bond market, self-regulatory measures were created, including guidelines, recommendations, guides and standards of good practice. Third, the green bond market is relatively new and less liquid than traditional bond markets. In the end, as with traditional bonds, changes in interest rates can affect the price of green bonds - Miloš Grujić states for eKapija.
Unexploited potential and barriers
Emina Kozarević points out that when we look at time trends, we can see certain positive developments in terms of the use of green bonds and green loans.
- However, when we look at the spatial comparison, the results are slightly different. The market for corporate and government green bonds is not present, while it is present in the surrounding countries. As we mentioned earlier, the market forms of collecting financial resources are not predominantly developed even in the conventional sense.
Given the great potential for the development of green financing in BH. economy, it is useful to underline several barriers that hinder the development of green financing in BiH. Among the most significant barriers are unclear regulatory rules in the context of the absence of national standards regarding the meaning of sustainability, administrative complexity and regulatory incompatibility.
Finally, it is important to point out that when it comes to green financing, the responsibility remains with the regulators, to facilitate the process of issuing green bonds or placement of green loans through changes in the regulatory framework, in order to make them more attractive for investors or debtors - Kozarević said.
Grujić states that many potential projects are under consideration, but there are also challenges, such as insufficient information about green financial instruments and the regulatory framework.
As the director of the Banja Luka Stock Exchange, Milan Božić, tells us, we are currently at the beginning of this process.
- This leaves many opportunities to be creative and innovative in this field. Of course, it is always possible to adopt practices from more developed countries that have proven to be the most effective.
- More education on green finance and clearer regulations are needed in order to encourage the further development of green finance in Bosnia and Herzegovina. With these steps, green finance has the potential for significant growth and contribution to the country`s sustainable development.
Senka Trivić
Click here to see the entire Special Edition Newsletter
"Green (r)evolution - The future has begun"
read more
Tags:
Naša Banka
Banja Luka Stock Exchange
Faculty of Economics
University of Tuzla
Independent University of Banja Luka
Miloš Grujić
Milan Božić
Dejan Vuklišević
Emina Kozarević
Muhamed Ibrić
ESG Guide for companies from the Republic of Srpska that are not listed on the stock exchange
green bonds
green financing
green bond market
green projects
ESG bonds
financial market
special edition newsletter
Green Revolution The future has begun
Comments
Your comment
Naš izbor
Most Important News
Full information is available only to commercial users-subscribers and it is necessary to log in.
Follow the news, tenders, grants, legal regulations and reports on our portal.
Registracija na eKapiji vam omogućava pristup potpunim informacijama i dnevnom biltenu
Naš dnevni ekonomski bilten će stizati na vašu mejl adresu krajem svakog radnog dana. Bilteni su personalizovani prema interesovanjima svakog korisnika zasebno,
uz konsultacije sa našim ekspertima.