Introduction
Climate change represents one of the greatest global challenges of the 21st century, and the financial sector plays a key role in mobilizing capital for green investments. Among the instruments that contribute to green financing, green bonds and green loans stand out. These instruments enable the allocation of capital to projects that reduce carbon emissions, increase energy efficiency, develop renewable energy sources, and support sustainable development.
Concept: What are green bonds and green loans?
Green bonds are a type of debt security (“bonds”) in which the capital raised is used exclusively to finance or refinance projects with environmental objectives. These are most often projects such as the construction of renewable energy sources (solar, wind), improvements in energy efficiency, low-emission transport, water management, waste management, biodiversity protection, and similar activities. Issuers may include governments (sovereigns), companies, or financial institutions. These instruments are generally structured in accordance with standards such as the Green Bond Principles issued by ICMA (International Capital Market Association).
Green bonds offer investors the opportunity to invest in sustainable projects while providing a clear reporting mechanism, and issuers are typically required to regularly submit reports on the allocation of funds (“use of proceeds”) and the environmental impact.
Green loans are loans provided to finance green projects. The principle is similar to that of green bonds: the lender (a bank or financial institution) offers a loan under more favorable terms (e.g., a lower interest rate or additional incentives) for environmentally oriented projects, such as the installation of solar panels, building insulation, the purchase of energy-efficient machinery, and similar activities. In some cases, green loans are tied to outcome-based mechanisms — for example, the interest rate may depend on whether the borrower achieves certain environmental targets. This is the approach used in programs such as the EBRD’s Western Balkans Green Outcomes-Linked Debt Financing Framework (WB GOLD).
Additionally, green loans are often provided through special credit lines supported by international financial institutions and grants (incentives), which reduces the cost of investments in green technologies and accelerates their adoption.
The Situation in the Western Balkans Region
- Sovereign Green Bonds
Serbia has gone the furthest. In September 2021, it issued its first sovereign green bond worth €1 billion with a seven-year maturity and a 1% interest rate, which at the time was a very favorable condition on the international market. The Serbian government had previously adopted the Green Bond Framework in accordance with ICMA principles, which clearly defines how the raised funds will be used for projects in renewable energy, energy efficiency, water management, biodiversity protection, and similar areas.
Green Bond Reports are published regularly to monitor the allocation of funds and their impact.
- Corporate and Sector-Specific Green Bonds
At the regional level, there are corporate examples: for instance, the EBRD invested €76 million in the VGP green bond (VGP is a company that develops logistics and industrial parks), with the funds used for environmentally sustainable facilities in countries such as Serbia and Croatia. This example shows that green bonds are not exclusively the domain of governments, but also of the private sector.
- Green Loans
Within the WB GOLD (Western Balkans Green Outcomes-Linked Debt) model, the EBRD approved a €40 million loan to UniCredit Leasing in Serbia, specifically targeting the SME sector.
Additionally, through the SME Go Green program, the EBRD and the EU provide loans to local banks in the Western Balkan countries, accompanied by grants (e.g., 10% or even 15%) to encourage investments in green technologies.
In Montenegro, the EBRD also provides loans to individual citizens (residential sector) for energy efficiency measures, along with cashback grants.
- Regulatory and Institutional Framework
European development programs (such as the Western Balkans Investment Framework – WBIF) support green investments through guarantees, credit lines, and technical assistance. However, the development of the green bond market in some countries is slow due to the lack of regulatory frameworks, capital market experience, and technical capacity. According to analysis, Albania and Bosnia and Herzegovina face more significant obstacles compared to Serbia.
There is also a challenge of harmonization: while the EU is developing its own standards (e.g., the EU Green Bond Standard), Western Balkan countries mainly follow ICMA principles, which can create differences in consistency, transparency, and investor attraction.
Green financial markets in the region are growing, but we can say that they are inconsistent. Serbia leads in issuing green bonds, while green loans are becoming increasingly important in supporting small and medium-sized enterprises. International financial institutions (EBRD, EU) play a key role in promoting this development.
The Situation in Bosnia and Herzegovina
- Green Bonds in Bosnia and Herzegovina
The first green bond in Bosnia and Herzegovina was approved for Naša Banka (Republic of Srpska), where the Securities Commission of the Republic of Srpska provided the green light. The planned issuance is 70,000 bonds with a nominal value of BAM 100 (convertible mark) each, totaling BAM 7 million (approximately €3.57 million). The maturity period is 7 years, with an annual interest rate of 5.15%. According to the study, the success of the issuance will be evaluated after three years; if less than 60% of the bonds are placed within that period, the interest rate will increase by 0.20% (to 5.35%) until maturity.
This is a crucial step as it gives Bosnia and Herzegovina a symbolic start to the green bond market, but the amount is relatively modest compared to the country’s needs for green investments.
- Green loans in Bosnia and Herzegovina
The EBRD launched a credit line under the SME Go Green program and allocated €7 million through Raiffeisen Bank BiH, which will channel the funds to small and medium-sized enterprises. UniCredit Bank (Mostar) is also involved, receiving €7 million from the EBRD through the same type of program. For the residential sector, the EBRD, through the Green Economy Financing Facility (GEFF), provided a €7 million credit line via UniCredit Bank dd Mostar, intended for households, businesses, and the public sector. Under this program, homeowners who meet energy-saving criteria can receive up to 20% cashback as an incentive, funded by the EU and other donors.
Microfinance sector: The IFC (International Finance Corporation) approved €20 million for Mikrofin in Bosnia and Herzegovina, with at least 25% of the funds allocated to climate-relevant projects and 50% directed to women entrepreneurs. Additionally, UNDP BiH and Union Bank have established a partnership to provide loan support to small and medium-sized enterprises investing in renewable energy and energy efficiency.
- Challenges and Risks for Bosnia and Herzegovina
- Scalability: Currently allocated amounts (e.g., €7 million in loans) are relatively insignificant compared to the needs for decarbonization, infrastructure modernization, and energy transition.
- Market liquidity: Green bonds in Bosnia and Herzegovina are still at an early stage (e.g., Naša Banka), so market liquidity is limited. This can make future issues and attracting larger investors more difficult.
- Bank capacity: Not all banks have the expertise to assess green projects, which slows down the deployment of green loans.
- Reporting and integrity: Clear rules and oversight are needed to ensure that funds are actually used for environmental purposes and to avoid “greenwashing” (when funds are presented as green but are not in reality).
- Attracting investors: In the absence of large issuances and a clear market framework, foreign and institutional investors may be more cautious.
- Perspectives and Recommendations
Strengthening the regulatory framework: Bosnia and Herzegovina should work on developing national or entity-level green frameworks (Green Bond Framework), in line with international standards, to increase credibility and attract investors.
Expansion of credit lines: Increasing resources through international financial institutions (EBRD, IFC, EU) for green loans, particularly for the residential sector, businesses, and energy-intensive sectors.
Technical assistance: Training staff in banks and financial institutions, as well as clients in preparing green projects, reporting, and risk management.
Reporting and transparency: Introducing more precise reporting (fund allocation, impact metrics) and independent audits to ensure investor confidence.
Incentives: Incentives such as cashback mechanisms (like GEFF), grants, and tax relief can help reduce the costs of the green transition.
Regional cooperation: Bosnia and Herzegovina can leverage examples from neighboring countries (such as Serbia) – knowledge sharing, standardization, joint projects – to accelerate the development of the green market.
Conclusion
Green bonds and green loans represent powerful tools for mobilizing capital toward sustainable and environmentally friendly projects. In the Western Balkans region, we see a trend of positive development: sovereign and corporate issuers, credit lines for small and medium-sized enterprises, and support from international financial institutions. However, this process is inconsistent — Serbia is the leader with its issuance of a green bond, while other countries are still building their capacities.
In Bosnia and Herzegovina, there is clear progress: the first green bond has already been approved, loans for green projects are active, and programs such as SME Go Green and GEFF bring significant potential for the residential and business sectors. Still, for real momentum, a systemic approach is necessary: regulatory reform, technical assistance, reporting, incentives, and better coordination.
If Bosnia and Herzegovina succeeds in institutionalizing green financial instruments, it can bring multiple benefits: emission reductions, energy savings, infrastructure modernization, strengthening the competitiveness of the economy, and attracting international investment. Green transition is not only a matter of environmental protection but also an opportunity for sustainable economic growth and prosperity.
Author: Aleksandar Sajic
E-mail: aleksandar@afsajic.com
