Pioneering Poland pumps up environmental credentials and considers local green bonds


Poland’s pioneering role in the Green Bond market has allowed it to reduce the cost of its fundraising for environmental projects, encouraged other sovereigns to follow suit, improved the supply of funds for these projects, expanded the range of active local investors, and led the Republic into considering local, zloty-denominated green bond issuance.

The development of a yield curve for Poland’s international green bonds has enabled the government to lower funding costs near to that of its conventional issuance, with the new issue premiums on its three international green bonds falling on each new issue. “The green part of the bonds is conducive to tightening spreads, which is also linked to a relative scarcity of such instruments,” said Piotr Nowak, Deputy Minister of Finance, Undersecretary of State in Poland’s Ministry of Finance. “On the other hand, we cannot expect investors to act like charities. Personally, I think spreads will remain compressed compared to traditional bonds.” 

Poland’s first international green bond was issued in 2016 and attracted a new issue premium of 8bp, a level that fell to 3bp in 2018’s issuance, with both tranches printed this year priced flat to the secondary market. “We cannot wait to see the premium in our next transaction” said Mr Nowak.

Environmental projects are at the top of priority lists for an increasing number of countries, with green bonds the best instrument for financing environmental projects and Mr Nowak expects other countries, including those in Central and Eastern Europe, to follow suit. “It’s only a matter of time before we see more countries issuing green bonds,” said Mr Nowak.

“Nowadays, climate change issues are of concern to a growing number of people and we see a role in promoting this investment,” said Mr Nowak. “In Poland, as in other European countries, green projects take up an increasing share of budget expenditures, with the number of eligible projects likely to rise, which means that there will be more room to issue green bonds.”

The proceeds of Poland’s green issuance have contributed to the achievement of a balance between anthropogenic greenhouse gas emissions and emission sinks, as is recommended in Article 4 of the Paris Agreement, according to Mr Nowak. “In particular, these activities concern both the reduction of emissions - support for clean transport and renewable energy sources and emission sinks – afforestation,” said Mr Nowak. “The green bond proceeds spent on refinancing the excise tax exemption for electricity generated from renewable energy sources has allowed us to achieve a reduction in emissions of over 40,000kt CO₂ (between the first half of 2014 and the first six months of 2018). Net reduction of emissions is a practical result of the implementation of the above-mentioned objective set out in Article 2 of the Paris Agreement.”

The Republic of Poland issued a €1.5 billion 10-year and €500 million 30-year Green Bond on 28 February 2019 through lead managers and joint bookrunners Citi, ING, JP Morgan, PKO BP, Santander and Societe Generale with 1% and 2% coupons, respectively. The bond was issued in line with the Issuer Green Bond Framework, with a second party opinion obtained from Sustainalytics, and the net proceeds to be used as per Poland’s framework.

When Poland first came to the green bond market in 2016, it committed to issue on a yearly basis and become a regular green sovereign issuer,” said Cecile Camilli, head of debt capital markets origination for Central and Eastern Europe, Middle East and Africa at Societe Generale. “Not only did it deliver on its word, but it also developed an extended green bond curve, both in terms of size and tenor. This is a strong testimony to investors and the market, which perceives Poland as an established green issuer.”

The final spreads were set at 35bp and 77bp over midswaps for the 10- and 30-year tranches respectively, on investor demand that exceeded €4.5 billion, with the 30-year the longest green bond issued by a sovereign. With almost 200 investors participating, the transaction saw a high degree of granularity with a broad and well-diversified distribution, with 47% of the allocation of 10-year and 43% of 30-year bond bought by 51 green-motivated investors.

A preference for euros and improving local knowledge

The increasing presence of Poland in the international green bond markets is also laying the groundwork for the sale of green bonds from Polish issuers, including in the domestic market, leveraging a local investor base that is becoming more attuned to socially responsible investment.

All our green bonds have been issued in euros in order to reach the market with the biggest variety of green investors. We are pleased that a decent allocation went to Polish accounts. Our local market has potential. More and more investors are aware of the importance of financing green projects. More funds should be available with a clear mandate to invest in green instruments. In fact, we are also considering the issuance of green bonds on our domestic market. We hope that our efforts encourage Polish issuers. We are happy that PKO Bank Hipoteczny has issued its inaugural green bond in the local currency market. The bank was a lead manager on all of our green bonds and has our support, as do other local issuers considering green bonds.

Piotr Nowak,
Deputy Minister of Finance, Undersecretary of State in Poland’s Ministry of Finance