Green treasury bonds. Are they a good investment option?

On September 7, 2021, the Public Treasury, an agency under the Bank of Spain, issued the first sovereign green bonds or green treasury bonds in the history of Spain. Specifically, the agency raised €5 billion with a 20-year term, which have been used to finance projects that promote the ecological transition and aimed at mitigating and adapting to climate change.

Although only two years had passed since then, in October 2023, the Treasury placed for the fifth time a new round of financing through green government bonds, in this case 1,604.18 million. With this, Spain is consolidating its position, along with other countries, as a reliable and sustained issuer of green debt, which is arousing so much interest among investors, and is approaching its goal of reaching 20 billion in circulation.

Green bonds and green treasury bonds

The green bond concept is the same in all cases: it is debt that is intended exclusively to finance or refinance green projects. In order to provide more transparency to investors, these bonds must be aligned with the Green Bond Principles (GBP), which promote the integrity of the green bond market through guidelines recommending transparency, disclosure, and reporting.

However, green bonds can be differentiated according to their provenance, that is, depending on whom the issuer of that debt is. In this case, that is the main characteristic of green treasury bonds, since they have the particularity that they are issued and backed by a country (in this case Spain), which confers an even greater element of security. At the end of the day, it must be remembered that it is still debt that must be repaid with interest.

Treasury green bonds and treasury bonds: are they the same?

When it comes to differentiating financial products, in this case debt, many classifications can be made: by the term, by the type of issuer, by the solvency of the issuer or by the objectives of that debt. In this case, the difference between treasury bonds and green treasury bonds lies precisely in the objective of each one, since, as we have seen, the money raised must not only go exclusively to green projects, but the State itself must guarantee it and prove it with the relevant reports.

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Spain’s sustainable investment framework

The issuance of green treasury bonds by Spain is part of the objective of increasing “transparency on Spanish environmental objectives and policy, promoting the development of sustainable financing and green capital markets in our country and continuing to diversify the investor base in government debt,” according to the Treasury itself.

As with other green bonds, the State makes available to all investors the reports detailing the amounts of money and the projects to which these resources have gone. Specifically, the 2021 and 2022 documents (which can be consulted here) reveal that the bulk of the money has gone to finance the clean transportation initiative. In this case, it is explained that “it has been chosen to allocate the transfers in favor of the managers and administrators of the infrastructure (Adif and Adif AV) and the operator (Renfe Viajeros)” and that this seeks to “promote rail as a mode of transport”.

Analysis of green treasury bond yields

As regards the yield offered by green treasury bonds, two considerations must be made first: on the one hand, that as a general rule it follows the trend of other debt assets in the market to some extent, i.e., it is influenced by the interest rates imposed by the European Central Bank (ECB). This explains, for example, that in its first issue the interest paid was 1.034%, while the October issue paid a maximum (marginal) rate of 4.48%.

On the other hand, it should also be borne in mind that this type of asset has a premium over its public counterparts. In other words, they pay a higher yield than other ‘normal bonds’ issued by the Treasury. That, again, can be seen with the yields offered: so, for example, while in October 2023 the maximum interest paid on green government bonds was 4.48%, the 10-year government bond paid 4%, the five-year just over 3.68% and the one-year 3.87%.

Forward yields on green treasury bonds

Higher profitability and projects that help the environment are the great strengths of treasury bonds. So, if you are interested, you can invest in them through inbestMe, a roboadvisors that provides you with portfolios automatically adjusted to your needs and that follow your environmental considerations. Moreover, it does so at a reduced price. All this makes it one of the leading platforms in Spain in the investment world.

In the specific case of green treasury bonds, you should know that inbestMe has a wide range of products with which you can benefit from all its advantages. In addition, you can do it from a minimum of 1,000 euros, so what are you waiting for to get going and make your savings grow while you get a better world.

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