A green bond is a fixed-income financial instrument in which an issuer borrows a large sum of money for the funding or refunding of green projects
What Are Green Bonds?
A green bond is a fixed-income debt instrument in which we lend money to issuers like governments, corporations, and institutions. This money is used for sustainability-focused projects. Green bonds are the same as traditional bonds, but the money we lend is used for energy efficiency, renewable energy, and other projects that meet sustainability requirements.
On 5 July 2007, the European Investment Bank issued a very special bond for the first time — green bonds, originally called Climate Awareness Bonds. This marked the beginning of a new era in green financing.
Main Uses of Green Bonds
Green bonds are wholly used for climate change and green projects that positively impact the environment. For instance:
- Waste management
- Renewable energy
- Energy efficiency
- Clean transportation
Iberdrola and Green Bonds: Leading the Charge Toward a Greener Future
In today’s world, we are facing the biggest challenge of the 21st century — climate change. Green bonds have become a powerful tool for tackling this challenge, and Iberdrola is at the forefront of the green bond market.
Iberdrola Follows Global Green Bond Principles
Iberdrola issues green bonds based on the Green Bond Principles established by the International Capital Market Association (ICMA). There are four core principles:
✅ Use of Funds
All money raised from investors is used only for green projects that benefit the environment.
✅ Proper Management
Iberdrola takes all necessary steps to manage the funds responsibly, allowing auditors to review how the money is used.
✅ Transparency
The company shares all its environmental goals with investors. These goals are verified by external experts.
✅ Regular Reporting
Investors receive regular updates on how the company is spending the funds and what environmental goals are being achieved.
In its latest updates, Iberdrola ensures that its green bond program aligns with the EU Taxonomy, which defines what qualifies as a green project and where money can be spent. This encourages private investment in sustainable growth and supports climate change goals.
Iberdrola: A Global Leader in Green Bond Issuance
Iberdrola was the first Spanish company to issue green bonds in 2014. Today, it is one of the largest green bond issuers in the world and has won multiple Sustainable Capital Markets Awards by GlobalCapital magazine.
Since 2014, Iberdrola has raised around €13.8 billion through 23 green bond operations, with all funds used in green projects.
New Operations for Sustainable Financing
In 2021, Iberdrola raised €13.1 billion in new green and sustainable deals, reaching a total of €35.8 billion in green projects since inception.
It also issued the largest hybrid green bond worth €2 billion.
Additionally, Iberdrola expanded its Euro Commercial Paper Programme, increasing the limit from €3 billion to €5 billion.
Advantages and Disadvantages of Green Bonds
Advantages
Low Cost and Scalable Capital
Green bonds help organizations raise money at low interest rates. This is great for big green projects like solar or wind farms and is also helpful for smaller projects. Investors are keen to invest in green bonds even at lower returns.
Full Control Over the Money
Unlike some loans that are restricted to specific projects, green bonds offer freedom to use the funds across different green initiatives, as long as they meet sustainability criteria.
Tracked Environmental Impact
After raising funds, companies provide reports detailing where the money was spent. This ensures transparency and gives investors confidence that their money supports a good cause.
Flexible Repayment Terms
Green bonds let companies choose how and when to repay the principal and interest. This flexibility is useful for long-term projects that take time to generate returns.
High Publicity and Positive Brand Image
Issuing green bonds enhances a company’s public image. It attracts customers and investors who care about the environment, earns media attention, and builds brand loyalty.
Disadvantages
Custom Setup Needed
There is no one-size-fits-all model for green bonds. Each company must design its own bond structure, including how to monitor and report environmental benefits. This requires time and expert help.
Investor Communication is Ongoing
Companies must maintain regular communication with investors to share progress and impact updates, which can be resource-intensive.
Extra Costs to Launch the Bond
Issuing a green bond involves working with legal, financial, and environmental experts. These costs can be high, especially for small bond issues. However, creating a reusable framework helps reduce future costs.
Conclusion
Green bonds have emerged as a powerful tool in the fight against climate change, helping organizations raise funds for sustainable, eco-friendly projects. They offer major benefits — from low-cost financing and flexibility to enhanced transparency and positive brand image. However, they also come with challenges like custom structuring, higher transaction costs, and the need for ongoing investor engagement.
As global attention shifts toward sustainability, green bonds are proving to be more than a trend — they are a key part of building a greener future.