Beyond the Green Label: What Investors Expect from Sustainable Finance Today

When Raiffeisen Bank International (RBI) issued its Tier 2 bond in Green format[1], investor demand exceeded EUR 2.2 billion and investors with environmental, social and governance (ESG)-related investment mandates accounted for a significant share of the orderbook and final allocations. The transaction was therefore substantially oversubscribed. Beyond the strong investor demand, the transaction offered insights into how expectations in sustainable finance[2] are evolving. Investors are increasingly looking beyond sustainability labels and asking more detailed questions about underlying assets, project selection and reporting practices. According to Roxana Stroie, Asset Liability Management at RBI Group Treasury, and Erik Soldatic, Impact & Development Solutions at RBI’s Group Structured Finance & Investment Banking, transparency, credibility and the ability to provide meaningful information are becoming increasingly important factors in investor dialogue.

While ESG considerations are subject to more debate than they were a few years ago, they remain important for many investors. What has changed is the level of scrutiny. Investors want to understand the assets behind a green bond, how projects are selected against the eligibility and exclusion criteria set out in the issuer’s green bond framework, and what environmental impact they are expected to deliver. “In my view, that is actually a healthy development. It pushes issuers to be more transparent and helps strengthen the market overall,” notes Erik Soldatic. Investors, he adds, are becoming “more selective and more focused on substance than labels.”

This development was also evident during RBI’s Green Tier 2 bond issuance. “The transaction clearly showed that sustainability continues to matter for investors,” says Roxana Stroie. In her view, the Green format was an important contributor to the transaction’s success and enabled RBI to engage with a broader group of investors, including ESG-focused accounts.

The discussions extended beyond the transaction itself, with investors seeking a better understanding of the underlying portfolio and the assets behind the transaction. As Roxana Stroie notes, “credible sustainability credentials, supported by clear use-of-proceeds and transparent reporting, can help attract additional investor demand and create valuable dialogue with investors.”

Investor scrutiny is also changing how issuers approach sustainable finance. “The days when investors were satisfied with broad sustainability commitments are largely behind us,” says Erik Soldatic. Investors want to know where proceeds are allocated, how projects are selected and what impact is being achieved. They also expect issuers to answer detailed questions and provide supporting data where appropriate.

Reporting, governance and transparency have consequently become more important. Although this creates additional work for issuers, Erik Soldatic believes it also strengthens confidence in the market and helps distinguish credible issuers from those that are less advanced.

Sustainable financing instruments can help connect investor demand with financing needs across sectors such as renewable energy, energy efficiency, transportation and infrastructure. For green bonds, the issuer’s Green Bond Framework specifies the eligibility and exclusion criteria for the assets that may be financed or refinanced. According to Erik Soldatic, this gives investors visibility into how capital is used and the environmental objectives supported by the underlying projects. At the same time, green bonds can help companies, sectors and regions transition towards more sustainable business models and may play an increasingly important role in mobilising private capital.

Central and Eastern Europe has significant investment needs in areas including renewable energy, energy efficiency, modern infrastructure and industrial transformation. Roxana Stroie points to strong demand for financing related to these sectors across the region

At the same time, meeting these financing needs will require substantial resources. “The challenge is really the scale of capital required,” notes Roxana Stroie. The funding required over the coming years cannot come from a single source alone. Instead, bank financing, public support and capital markets will all need to play a role. Sustainable financing instruments are one of the tools that can help attract private capital and support investments intended to strengthen resilience, competitiveness and energy security. However, they are only one part of the broader financing mix. As Roxana Stroie points out, success will depend on bringing together different sources of funding at the scale required.

Looking ahead, Erik Soldatic expects sustainability considerations to become increasingly integrated into mainstream investment decisions, with investors focusing more on risk management, resilience and long-term value creation. He also expects transition finance to gain importance as companies and sectors seek funding to support their move towards more sustainable business models. At the same time, investor analysis is becoming increasingly detailed, with investors seeking a deeper understanding of sectors, technologies and underlying assets before making investment decisions. “I expect sustainability to remain a relevant theme in capital markets, but with a stronger focus on transparency, credibility and measurable outcomes than we have seen in the past,” concludes Erik Soldatic.