In recent years, most large banks have adjusted their policies to restrict access to finance for certain technologies, fuels or projects that are not in line with the energy transition and, in return, to direct their funding to support transition and sustainable investments, says Oana Mogoi, Head sector, Utilities & Natural resources, ING Bank Romania.
“The project under the aegis of the National Committee for Macroprudential Oversight aims, along with BNR, the Presidential Administration, the ministries of interest and commercial banks, to accelerate the provision of sustainable financing for green projects,” said Oana Mogoi, at the “Investments for Energy Transition” conference, organized by Energynomics, on 28 January. “The idea of sustainability has taken shape in ING since 1996, when the first sustainability report was issued, the goals were set in 2010 and in 2014 sustainability became part of the ING strategy. Since 2015, when the first green bond was brokered, things have advanced fast and green finance products have diversified. This gives us a privileged position in the market, as can be seen from the ratings of the various sustainability rating agencies.
We can intermediate green bonds, if the funds attracted are used for sustainability-related projects and initiatives, or projects for which a sustainability target is defined, which is linked to the coupon. In 2019, ING brokered 62 such issuances globally, and in 2020 we managed to structure the first green bond for a customer with business in Romania; it is true, not in the energy sector – but we showed that we could do it and I hope that others would follow.” Mogoi said.
Bond financing involves large amounts of more than EUR 250-300 million, but for a smaller pool of investors threshold can get down to EUR 100-150 million. Green bonds also imply an external sustainability rating.
“For smaller amounts, green loans can be granted, for which the precise purpose of using the funds is defined, strictly related to the idea of sustainability, and the destination of the money is carefully monitored. Also, the area of green loans also includes the sustainability improvement loans, which can be granted for no specific purpose, but which entail the setting of sustainability targets or an external environmental and social governance rating, which are linked to the interest margin – if met, a discount is granted and, if not, on the contrary, a penalty is charged. The agreed KPIs or targets must be specific, measurable, realistic, but ambitious, have a methodology behind them and be auditable. As examples, we can have carbon reduction, energy efficiency, share of green energy consumption, etc. Project financing, or structured financing, may also fall within the scope of sustainable financing, depending on the type of financed project. We can help our customers get these sustainability ratings from specialized agencies, and we can also support our customers in defining their sustainability strategies. We can also provide green bank guarantees securing customers’ obligations in their sustainable projects, we can structure support chain finance structures, where discount rates or payment terms are linked to the sustainability of suppliers, and we can also offer derivative products, such as interest rate hedging, when it is linked to achieving sustainability goals,” she explained.
The main benefits of sustainable financing through green finance products are:
- better financial performance of companies, as sustainable projects will not have pollution-related costs, so they will benefit from a healthier and more predictable cash-flow;
- a discount on the interest rate when meeting agreed targets in case of sustainability improvement loans;
- higher investor appetite for portfolios of projects and green bonds;
- better reputation as well as an improved sustainability rating