Issuers and advisers alike are grappling with mounting sustainability documentation requirements, but the evolving regulatory landscape still presents green financing opportunity, experts said last week at the Invisso CEE Forum.
More than 2,000 central and eastern European financiers gathered in Vienna to discuss the regional banking scene at the 30th anniversary of the longstanding event.
The implementation of the stricter EU green bond standard (EUGBS) was one of the key topics under discussion. During a panel on “Sustainability data: climbing the reporting mountain”, bankers from Societe Generale, ING and Intesa Sanpaolo shared their first-hand experience.
The new EUGBS is, alongside the latest European Securities and Markets Authority (ESMA) sustainability reporting guidelines, creating a complex landscape for sustainable finance. Issuers are increasingly cautious when navigating the growing documentation requirements, says Paula Dunin-Wasowicz, Societe Generale’s director for debt capital markets/sustainable bonds, but that also highlights the need for better quality data.
Given its voluntary status, the EUGBS's regulatory framework, in place since December 21, 2024, may take a while to catch on. “We expect many issuers to sit on the sidelines and adopt a wait-and-see approach, to see what the market reaction will be to the first issuers,” says Silvia Tardia, ESG adviser at Intesa Sanpaolo’s Banca IMI.
While those with best-in-class sustainability policies might not immediately see the extra benefit in the additional effort to adhere to the regulation, “first movers can take advantage from the scarcity value of the instrument,” she adds.
Fresh ESMA guidelines, the incoming corporate sustainability reporting directive (CSRD) and the corporate sustainability due diligence directive (CSDDD) may be causing headaches, but it is undeniable how far along the industry has come in the past decade. “The market is making huge strides to try to channel capital towards addressing the global challenges that we face,” says Joshua Zakkai, director, sustainable markets and ESG advisory at ING. “The question is, how do we ensure fine-tuning so that it’s practical both for issuers and for investors.”
Climbing the reporting mountain
The market’s growing pains were illustrated by MVM's recent bond market activity. The Hungarian energy company successfully raised US$750 million in green bonds in 2023, the first corporate green bond in the country. Laszlo Fazekas, CFO at the state-owned firm noted how the green paper was aligned with MVM’s transition strategy and green finance framework and was well received, but added once the company looked to issue further paper, the limited financial benefits from the green label meant the team turned to a conventional bond instead.
“Every year there is more and more legislation. Enough is enough," says Gary Mazzotti, CEO at the Czech energy infrastructure group EP Infrastructure. “Is this regulation helping me or hindering me to do the transition?” adds Mazzotti, who notes the transition can be financed with capital from elsewhere if the regulatory burden in Europe proves too cumbersome. Both executives agreed that compliance is costly for companies, which raises strategic questions on value. Fazekas caveats: “On a positive note, it can support relationships with investors and increase transparency.”
For the CEE audience, the topic is particularly nuanced compared with the broader European landscape, given the regional energy mix infrastructure, which makes alignment with the EU taxonomy ever more difficult, the panellists agreed.
The challenge of EU taxonomy alignment when it comes to the treatment of gas-fired power plants and hydrogen production is a key pain point for regional executives.
The “trilemma” of energy security, leading on energy transition and providing affordable prices is perennially in the board room.
Sustainable debt poised for modest growth
Despite the challenges and the signs of maturity, the sustainable debt market still promises moderate growth for 2025. It is the year of implementation and action on the latest rules, with green bonds expected to continue accounting for the lion’s share of issuance, predicts Intesa’s Tardia.
Sustainability-linked tests KPI credibility
The potential reawakening of the dormant sustainability-linked bonds (SLBs) is another question mark for 2025, as almost 100 names are due their observation dates this year, with lenders assessing whether ESG targets have been met, according to analysis by Sustainable Fitch.
“Regulation encourages issuers to set targets as part of the reporting which could potentially be a boon to the sustainability-linked market. We don’t necessarily expect growth, but there is an outside chance that you could see a revival,” says Joshua Zakkai at ING, who adds that SLBs remain a good solution for issuers that are not asset-heavy or have significant capex.
Financial innovation could come in the shape of thematic bonds, especially on climate adaptation and biodiversity projects. “The EU taxonomy supports the growth of this market, because it gives a standardised framework on what is sustainable and helps investors in evaluating investments,” she says.
Sustainable finance is not just about capital markets transactions, though, but rather permeates the whole investment cycle. “Investors continuously integrate ESG into their investment decision-making process, whether that's in relation to their sustainable funds, Article 8 and Article 9 funds, or regarding baseline requirements for Article 6 funds, that do not have sustainability mandates,” explains ING’s Zakkai, pointing to the wider implications of sustainability reporting across the board.
Looking ahead, there is a clear need for regulatory bodies to find a balance between robust standards and practical implementation, with interoperability the name of the game.
As the market continues to evolve, the success of the EUGBS – among other instruments in the finance toolkit – may ultimately depend on its ability to adapt to these practical challenges while maintaining the integrity of sustainable finance principles.
