Spearheading Hungary's green efforts, Zoltán Kurali, CEO of Hungary's Government Debt Management Agency (ÁKK) tells Environmental Finance how its detailed impact reporting can lead the way in the country.
Environmental Finance: Why does ÁKK give so much importance to impact reporting? What's the benefit?
Zoltán Kurali: Investors require high reporting standards and, for us, adhering to best market practice is very important. Additionally, our reporting follows the globally accepted International Capital Market Association (ICMA) Green Bond Principles and its reporting requirements. Our Green Bond Framework was created based on ICMA guidelines back in 2020.
We believe that having an allocation and impact chapter together in an integrated report provides exceptional transparency. Also, I think it helps investors to make sure that their investments are used according to their expectations, especially in funds that are heavily focused on environmental, social and governance (ESG) themes. With a higher level of transparency and reporting standards, greater investor trust can be earned.
We also believe that the reporting process helped us to streamline processes internally. With ministries, and various stakeholders involved in the policy-making and execution of issuing the bonds, reporting and measuring the impact helps policymakers to ensure the investment requirements are met.
EF: How does successful impact reporting shape the market?
ZK: Reporting – especially on the impact - is something issuers need in order to demonstrate that they have spent the money in a sustainable or correct way.
Transparent reporting helps to further enhance the integrity of the ESG market and helps understand whether allocations were impactful or not. We believe that a transparent report – published regularly after a reconciliation period with the various stakeholders – followed by engagement with investors makes sure that no greenwashing occurs. Credibility can be established and maintained this way.
We were responsible for the first issuances of a green bond in our country and many more have followed us since. Initially, our idea was to create a best practice example for Hungary because it's the role of the government to lead the way. With respect to our reporting, we always try to align with the international best practice.
Our role models are the large European sovereigns who have issued green bonds before us, such as France or Belgium. Obviously, there is still work to do, but a high-quality sovereign issuance helps the domestic economy and helps us attract investors. Investor engagement is also very important because we are competing in the global market for funds from ESG investors, so producing the highest quality of reporting helps.
Additionally, investors also require the issuer to be transparent about its ESG profile, so we have prepared with the relevant ministries the comprehensive "Hungary – Environmental, Social and Governance Profile 2024" document, which summarises the overall ESG picture of Hungary regarding its commitments, finance and strategies.
EF: You also updated your Green Bond Framework last year. Why did you do that?
ZK: We have incorporated elements from the EU taxonomy on a best-effort basis, which obviously, as an EU member state, is a must in the long run. Also, again, investors required us to do that. Incorporating the EU Taxonomy enhances the 'greenness' of this framework.
For example, in the case of public transport, it was very difficult for us to differentiate between zero emissions transport versus ones that use fossil fuels, simply because there was no data. As a result of the green bond process over the years, we now have more stringent data and we can differentiate and exclude anything that is related to fossil fuels.
Upgrading our framework to be 'darker green' also helps the process. We now have stricter rules for the allocation of the proceeds as in the previous framework we did not have any limitation for allocating proceeds for future spending.
As for the impact, in our previous Green Bond Framework we were obliged to do an allocation report every year but not an impact report (although we did annual impact reporting, regardless). In our new framework, impact reporting is a mandatory commitment.
EF: What is next for ÁKK and Hungary in terms of green bonds and sustainable financing?
ZK: With respect to our current profile, Hungary is a unique green bond issuer as we have issued in four currencies. We have issued in Hungarian Forint on the domestic market and also issued on the Euro, Japanese Yen and Chinese RMB markets. A clear benefit of Asian currencies is attracting different investors in those markets and further diversifying our investor base. So we'll continue doing this.
Reporting under the new framework will incorporate our commitments under the framework and, to the extent possible, the criteria set out by the EU Taxonomy and Climate Delegated Act. It'll be a very interesting process and we will be one of the first few issuers who report like that, so I think that it will be a quantum leap forward for us.
We are also examining other instruments, for example, social bonds, or some sort of impact bond, with a dedicated use of proceeds. We are looking at what could be the right structure for Hungary and what is the right direction that will also appeal to investors.
Additionally, we plan to expand and update the Hungary – Environmental, Social and Governance Profile document annually.
For more information, see: akk.hu/green-bond
