Local and green consumption trends have been strengthened, especially since the Covid-19 crisis. Agriculture is recognized as essential and is taking on new colors. It must align itself with the expectations of customers who are constantly evolving and turn to more environmentally friendly production methods.
In 2019, agriculture was, second in terms of greenhouse gas (GHG) emissions. Its emissions alone caused 20% of France's total carbon footprint. They contribute to global warming, which causes a series of disasters in our environment: pollution, famines, species extinctions, fires, heat waves, floods, etc.
Solutions exist, starting with the redirection of financial flows towards investments to improve the ecological footprint or reduce the carbon footprint of companies. This is reflected in particular by the explosion of green bonds.
Green bonds are bonds issued on the financial markets by large companies, international organizations, or local authorities. They aim to finance projects related to the ecological transition, such as the development of new production channels, less polluting in the agri-food sectors.
Unfortunately, in the case of the agri-food sector, today, green bonds are not always accessible to the principal actors of these sectors, which are producers, generally farmers. This is explained by the fact that the companies in which these producers work are essentially VSEs or SMEs. As a result, they do not meet the criteria for issuing these bonds.
Regulation at the service of the environment
The European Commission has drawn up strategy around the objective of climate neutrality by 2050. It encourages companies to invest in projects that reduce their carbon footprint.
Elements of the interim agreement include redirecting capital flows towards responsible investment, integrating sustainability into risk management, and ensuring transparency and a long-term vision in financing of sustainable projects.
This regulatory framework provides opportunities for local projects. It allows us to support the ecological transition at the territorial level, by rewarding behaviors that go beyond usual practices.
In order to meet these objectives, the Ministry of Ecological Transition has created the low carbon label (LBC). It is a system certifying agricultural or forestry projects. The label rewards the actors of the ecological transition who reduce their greenhouse gas emissions, for example.
Green bonds, a lever for the ecological transition
Green bonds are one of the recent classes of bond debt. There is a growing demand from investors and a diversification of issuers. In this fast-growing market, France is the leading issuer of green bonds.
Today, green bonds are only issued on financial marketplaces, they are becoming accessible even for small companies' projects and for all types of investors thanks to the initiative of several fintechs.
Some start-ups already allow the verification of carbon impact of projects via the information provided by issuers and by external certifiers calculating the carbon impact emitted.
As for any investment project, the outcome must be profitable for the investor and for the issuer. The objective of the green bond issuing company is to attract investors as well as to meet the social and environmental responsibility's (CSR) requirements.
The limits of a high potential strategy
Green bonds, are often issued by companies wishing to offset their GHG emissions. The calculations of emissions are based on the evolution of a balance between the greenhouse gases emitted (CO2, NO2...) and those retained through the replanting of trees or hedges, for example.
However, the selection criteria do not include companies that are already carrying out eco-friendly measures and are in need of additional funding to continue their efforts. For example, a farm that already practice a less polluting and environmentally friendly agriculture is not eligible for green bonds.
Today, green bonds allow large companies to strengthen their climate commitment and their investment strategies against global warming. In the case of farms, the European government encourages them to reduce their carbon footprint but access to green bonds to support their investment is closed.
Fintech-designed solutions for green bonds
In response to mobilize investments in order to achieve the Sustainable Development Goals (SDGs) by 2030, more funds are being invested in carbon-neutral economies.
Financial markets are adapting changes and now allow for investment in the energy and ecologic transition. Indeed, financial markets and investments sustainability-based investments increased by a great margin despite the market volatility in 2020, says UNCTAD's World Investment Report 2021.
Financial innovations facilitate the issuance and management of green bonds. This is the case with blockchain-based green bonds using smart contracts. These innovations are intended to meet the requirements of transparency, security, and quality.
These innovations have the advantage of facilitating over-the-counter trading of green bonds and thus facilitating the raising of capital for more sustainable activities. The issuance of a tokenized green bond represents an innovation in the world of sustainable finance.
In the face of environmental changes, European regulations force companies to change their sustainability policies. This economic and environmental challenge has found a solution in responsible investment through financial tools such as mini-green bonds for small businesses.
This innovation is part of the action plan of fintechs who are coming together to think about applications on Blockchain-based technologies to facilitate the issuance of these bonds for both mid-caps and large companies as well as for SMEs.
These fintechs thus increase the accessibility and transparency of green bonds in the financial markets.
Re fundia participates in this effort by digitizing bond debt securities and providing a secondary marketplace buyers and sellers of unlisted bond debt.
