Sponsored briefing: Portugal: Sustainable finance

VdA’s Ana Luís de Sousa and Hugo Moredo Santos on the importance of capital markets to sustainable financing

The capital market plays a very prominent role in sustainable financing. The issue of instruments such as green bonds or sustainability-linked bonds still represents, in absolute and relative terms, a small portion of total bond issues. However, the interest of issuers and investors for sustainable bonds has grown very significantly.

Until now, these bond issues have been made under the principles established by ICMA or the standards set by the Climate Bond Initiative. Market participants, from issuers to investors, including also financial and legal advisers and regulators, are acquainted with these voluntary guidelines and standards, which have been used for almost ten years.

Conscious of the need to provide an adequate legal framework for this growing market, the European Commission has already approved the Taxonomy Regulation and put forward a proposal for a Green Bonds Regulation. These important measures were taken under the umbrella of the European Green Deal, which highlighted the need to better direct financial and capital flows towards green investments and opened the door to the European Green Deal Investment Plan, a part of which corresponds, precisely, to the establishment of an EU green bond standard.

According to the existing proposal, the approval of such EU green bond standard will require the use of the designation ‘European green bond’ or ‘EuGB’ (European green bonds), which will only be applicable to those bonds that comply with the Green Bonds Regulation, once it is approved. This was the equitable solution found to allow the parallel existence of the ICMA principles and the Climate Bond Initiative standards. Issuers and investors may elect to follow one route or the other. As such, more (easily identifiable and comparable) options will be available.

In this context, Portuguese banks and companies continue to use capital markets and, more specifically, sustainable finance, as a funding source.

In the ongoing quarter, in the corporates area, reference is made to the two issues of green bonds by EDP – Energias de Portugal, S.A. and the sustainability-linked bonds issued by Mota-Engil, completed in October, as well as the issue of green bonds by Greenvolt – Energias Renováveis, S.A., completed this November. The banking sector has also raised sustainable debt through the capitals markets, with the issue of green bonds by Caixa Geral de Depósitos, S.A. in October being particularly worthy of note.

‘Portuguese banks and companies continue to use capital markets and, more specifically, sustainable finance, as a funding source.’
Ana Luís de Sousa and Hugo Moredo Santos, VdA

EDP – Energias de Portugal, S.A. was the first Portuguese company to issue a green bond, in 2018, and since then it has regularly issued this type of debt to qualified investors with a view to raising funds to finance or refinance its portfolio of eligible ‘Green’ projects, as defined in its ‘Green Finance Framework’, having completed two transactions in October, tapping the European and American markets.

Mota-Engil, SGPS, S.A.’s inaugural sustainability-linked bond issue, completed last year, was awarded the ‘Finance for the Future’ prize by Euronext Lisbon. It was the first ever sustainability-linked bond issue in Portugal and targeting the retail market. Mota-Engil has now repeated this offer with the aim of improving a key performance indicator in the context of its activity – namely, reducing the number of non-fatal work accidents resulting in sick leave.

Greenvolt – Energias Renováveis, S.A., which completed its IPO last year, a transaction awarded ex aequo the ‘Issuer of the Year’ award by Euronext Lisbon, had already made its inaugural green bond issue in 2021, targeting qualified investors. Greenvolt has now approached the retail market with a new green bond issue, the first of its kind to be addressed to the retail market in Portugal. With this transaction, Greenvolt intends to raise funds to finance and/or refinance new and/or existing renewable energy and energy efficiency projects.

Caixa Geral de Depósitos, S.A., the first Portuguese bank to complete a green bond, has launched its second green bond issue, now under the form of preferred senior bonds. The proceeds of this transaction will be used to fund credit transactions in the environmental sector.

In the face of challenging times the growing importance of sustainable finance and capital markets’ role as an alternative funding source is undeniable, helping banks and corporates to raise funds to develop their business and activities.