FUNDING THE GREEN TRANSITION: GREEN BOND OPPORTUNITIES IN UKRAINE

Sustainable energy finance is one of the most promising sectors in Ukraine. Significant policy reforms are underway in Ukrainian energy markets, and much has already been done to create a market opportunity for sustainable energy finance in Ukraine and reach the national targets established by the Energy Strategy of Ukraine until 2035 – in particular: (i) to increase the share of renewable energy in the total primary energy supply of Ukraine to 25 per cent by 2035, and (ii) to reduce greenhouse gas emissions in final fuel consumption by 20 per cent by 2035 as compared to 2010. Green bonds play a key role in achieving these ambitions.

1. New legal framework for green bonds

One of the key recent developments in sustainable energy finance is that Ukraine introduced green bonds as a separate type of security. On 1 July 2021, the amended Law of Ukraine “On Capital Markets and Organised Commodity Markets” entered into force (the Law). The Law outlines the general framework for green bonds regulation in Ukraine as follows:

(a) Use of green bond proceeds Green bonds should be used exclusively to finance or refinance environmental projects: (i) alternative energy, (ii) energy efficiency, (iii) waste generation minimisation, utilisation and processing, (iv) environmentally friendly transport, (v) organic farming, (vi) conservation of flora and fauna, water and land resources, (vii) adaptation to climate change, and (viii) other projects with a focus on climate and environmental benefits.

(b) Green bond issuers Both corporate and public issuers may issue green bonds in Ukraine. Public issuers will be able to issue green bonds after the Government of Ukraine approves the procedure for selection and maintenance of environmental projects financed from the state and local budgets.

(c) Additional disclosure and reporting requirements Any issuer of green bonds must (i) include a project description covering its technical and economic parameters, the implementation period, and the environmental effect expected from the project implementation (in the bond issue decision for public issuers and in the prospectus for corporate issuers), and (ii) disclose information on the stage of the environmental project implementation and the amount of funds used to implement or finance the environmental project in the annual reports. The Law protects the rights of the green bonds investors by prohibiting the issuer to take any actions, which may result in early termination, cancellation or other loss or encumbrance of their rights to the environmental project.

2. Green bond market developments

In May 2021, the State Agency for Energy Efficiency created the Interdepartmental Working Group on the green bond market in Ukraine. In July 2021, the National Securities and Stock Market Commission of Ukraine adopted recommendations for implementing or financing environmental projects through the issuance of green bonds. These were developed according to the Green Bond Principles (GBP) of the International Capital Markets Association (ICMA), the European Green Bond Standard and the Environmental, Social and Governance (ESG) standards adopted by the International Finance Corporation (IFC).

The recommendations provide, inter alia, that the issuer of green bonds must also (i) publish reports on the environmental impact of the projects, which are fully or partially financed and/or refinanced by the funds raised through the issuance of green bonds, and (ii) have its own policy on green bonds.

Some of the Ukrainian energy market participants have already elaborated their own green bond policies. For example, DTEK, a Ukrainian green energy producer with 1GW of installed capacity, has developed the Green Bond Framework, which follows the guidelines specified in the GBP. Besides, DTEK was the first Ukrainian company to make a green Eurobond offering in 2019.

3. Outlook

The Government of Ukraine expects to launch a full-scale green bond market in 2022 to 2023. A draft concept of the development of the green bond market in Ukraine has already been elaborated and is currently under consideration of the Government of Ukraine.

According to the State Agency for Energy Efficiency, Ukraine also intends to streamline the market for independent appraisers and green bond verifiers to eliminate the risks of greenwashing and create a technical office for the examination and support of environmental projects.

Overall, we are very excited about the developing Ukrainian green bond market and believe that it would strengthen Ukraine’s energy independence, help reach national strategic goals and fulfil Ukraine’s international obligations.