Blog | 01/20/2022 10:13:06 | 3 min Read time

Green Bonds mitigating climate change

Kenneth Råman

Senior Vice President, UPM Treasury and Risk Management

Responsibility plays an important role in UPM’s financing.

We are in a unique position to advance a circular bioeconomy and take the world towards a future beyond fossils. Responsibility is integrated into our strategy as a solid foundation for long-term value creation.

Responsibility also plays an important role in our financing and gives debt investors a great opportunity to promote activities, such as climate change mitigation and the UN Sustainable Development Goals, together with us.

Mitigating climate change requires swift actions. One key step is to reduce the use of fossil raw materials. There is no doubt that we need to change the way we produce and consume things and to steer funding to sustainable investments. The finance sector can also do its part, through instruments such as green bonds. They are fixed-income instruments designed specially to finance climate-related and environmental projects.

For companies such as UPM, issuing green bonds brings benefits by offering an opportunity to make our sustainability agenda known to an even wider audience while reaching a new and rapidly growing group of bond investors who focus on sustainability. The larger investor base can also bring advantages to the pricing of these bonds – the so-called “greenium” – reducing the overall financing cost for the company. This makes the extra effort needed for the required transparency and reporting well worth it, not to mention the economic point of view.

To enable us to issue green bonds, we established a Green Finance Framework in November 2020. The framework is based on the International Capital Markets Association (ICMA) Principles, which are guidelines that outline the expected transparency requirements and promote integrity in the development of the Green Bond market.

Our framework has been reviewed and validated by an independent external second-party opinion provider, and it encompasses debt instruments where funds are dedicated to defined green activities and investments. We have since issued two green bonds under the framework: a EUR 750 million bond in November 2020 and a EUR 500 million bond in March 2021.

Part of the transparency expected by the green bond principles is the annual publication of a report highlighting the information on how the funds raised by issuing the bonds were used and the ensuing positive impacts – for instance, the CO2 reductions/EUR 1 million achieved. We published our first Green Bond report in April 2021 with detailed allocation information and the environmental impacts of the first green bond.

Of this EUR 750 million bond, 90% was allocated to sustainable forest management, including the carrying value of forest land and sustainable forest management costs. The remaining 10% was allocated to finance climate-positive products and solutions, which are the research and development costs of biochemicals, biocomposites, biofuels and biomedicals. The impacts measured were hectares of certified forests, the carbon sink of UPM’s certified forests, the positive impact on biodiversity and the number of patents and trademarks related to our bio-businesses.

The bottom line is that sustainable businesses like UPM are all about having an overall positive impact. A “good” business acts and does things responsibly and is rewarded for it. We want to run our business in a sustainable way and enable our customers and stakeholders to make more sustainable choices. For us at UPM Treasury, it has been rewarding to be able to do our part in achieving this. 

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