Telefonica and Verizon became the first two network operators to join the fashion for issuing ‘green bonds’ for funding environmental initiatives, but an alignment of benevolence and self-serving commercialism might best characterise this trend.
Green bonds specifically earmarked for projects related to clean water, clean air, renewable energy and other environmental objectives have seen an explosion in issuance over the past several years.
Green bonds 2018 and beyond
The Climate Bonds Initiative estimates that green bond issuances grew from $155 billion in 2017 to over $250 billion in 2018.
Green bonds entered the market in 2008 with issuances by the World Bank and have proliferated ever since. More recently, governmental institutions have climbed onboard: in 2017, the Commonwealth of Massachusetts in the US issued over $1 billion in green bonds to fund improvements to water infrastructure.
Today, telecoms are also joining in, but these operators’ motives are not quite as altruistic as might first appear. In fact, the new bond issuances are likely the start of a trend toward using ‘green’ funds to drive multiple goals – some altruistic and some less so.
Verizon and Telefonica green thinking
US-based Verizon issued $1 billion in green bonds in February to fund projects, which it said related to: “renewable energy, energy efficiency, green buildings, sustainable water management, and biodiversity and conservation … designed to positively impact the environment and advance UN Sustainable Development Goals.”
The new bonds will help Verizon meet its commitment of using renewable energy to power 50% of its electricity usage by 2025. However, Verizon also plans to support some of its plans related to 5G – in other words, to enhance the ‘smart city’ and ‘smart home’ services it sells to customers.
In January, Span-based Telefonica placed a €1 billion green bond with plans to replace ageing copper equipment with faster and more efficient fibre in Spain. Telefonica estimates fibre is 85% more energy-efficient than copper and that it has saved 208-gigawatt hours of electricity and reduced carbon dioxide emissions by 56,600 tons by switching to fibre in many markets over the past three years.
To its credit, Telefonica has been among the most environmentally friendly telecom operators, already deriving more than half of its energy from renewable sources and committing to cut its carbon dioxide emissions in half by 2030.
However, like Verizon, its green bond serves both altruistic and commercial goals: deploying fibre will enable it to offer a much more compelling value proposition to its customers that should make Telefonica more competitive in the market.
With the green bond movement having reached the telecoms industry, two things are likely to happen fast: 1) other telecom operators will follow suit with green bond initiatives of their own and 2) these operators will get increasingly creative in positioning commercial and competitive goals under the ‘green’ label.
In order to divine the true intent of the next wave of green bonds, investors and customers may need to remove their green-tinted glasses and understand the multiple motives behind these investments.