Issuing green bonds: Is cost a barrier?

A recent analysis by FiinRatings indicates that, based on experience from overseas markets and international studies, specifically using the World Economic Forum's cost simulation model, the total cost of issuing green bonds includes direct costs (one-time and recurring) and indirect costs from complying with published standards and sustainable development goals.

In theory, the cost is commensurate with the benefit. However, in reality, a significant disparity can be observed, especially for first-time or small-scale issuers, creating a major cost barrier to accessing green bond financing.

Costs incurred when issuing green bonds (Unit: USD)

Pre-issuance costs typically account for the majority of expenses. Therefore, businesses need thorough preparation from the pre-issuance stage, including: selecting projects that meet green criteria, building a transparent capital management system, and establishing a process for monitoring the effective use of capital.

To reduce these barriers, support from stakeholders, especially the public sector, is needed to increase benefits and reduce costs, thereby promoting the development of green financial markets.

FiinRatings estimates that recent green bond issuances in the Vietnamese market have had issuance interest rates of around below 6%. Related costs include underwriting fees ranging from 1.5-2.5% depending on the underwriter's assessment, upfront fees of around 1-2%, commitment fees of less than 1%, and other fees.

Overall, the estimated total cost for companies issuing green bonds remains approximately 1-2% lower than the average interest rate on regular bonds offered by companies in the same industry group.

Estimate the coupon interest rate and other costs over the term of several recent green bond issues by non-financial businesses.

The issuance of green bonds in the Vietnamese market remains relatively modest. However, this market is expected to develop more strongly in the future thanks to several key drivers.

Firstly, the legal framework is becoming increasingly complete and synchronized, with the Government issuing policies, national green classification criteria, as well as tax incentives and securities services to encourage the issuance and investment in green bonds. This creates a solid, transparent, and favorable legal environment for businesses and investors to participate in the market.

Secondly, investor demand is increasing due to the growing trend towards ESG (Environmental, Social, and Governance) investing. Investors are not only seeking profits but are also interested in projects that have a positive impact on the environment and promote sustainable development. This fuels the growing demand for green bonds as a financial instrument that is both efficient and socially meaningful.

Finally, FiinRatings assesses that businesses are increasingly proactive in building green financial frameworks and conducting independent assessments according to international standards such as those of the Climate Bonds Initiative (CBI) and the International Capital Markets Association (ICMA). This standardization helps enhance the credibility and transparency of green bonds, building confidence among domestic and foreign investors.

Source: https://baodautu.vn/phat-hanh-trai-phieu-xanh-chi-phi-co-la-rao-can-d303224.html