Tuesday

5th Jul 2022

EU's chance to be world's biggest green-bond issuer

  • This move would make the EU the largest supra-national provider of liquidity for a green safe asset - drastically increasing the size of the global green bond market compared with total issuance in 2019

The European Commission is now considering issuing 'green bonds' for the first ever time - aiming to help investors wanting to pick sustainable options, while supporting Europe's green transition.

At their July summit, EU leaders reached a landmarked agreement which allows the commission to borrow up to €750bn on the capital markets to support member states to recover from the coronavirus pandemic - and a further €150bn for unemployment insurance schemes.

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While the fund is supposed to be aligned with both the Green Deal and the Paris Agreement's objectives under the "no harm" principle, green groups and other critical voices are calling for the debt to be used for environmental projects.

The head of the European Parliament's environment committee, MEP Pascal Canfin from Renew, wants at least €250bn of the recovery fund to be 'green bonds' - where proceeds are used for environmental projects - starting with €100bn in 2021.

"Today we know that at least €200bn of the EU recovery plan will finance green investments, thus enabling an issuance of green bonds of the same amount," Canfin told EUobserver on Monday (14 September).

This move would make the EU the largest supra-national provider of liquidity for a green safe asset - drastically increasing the size of the global green bond market compared with total issuance in 2019.

"The EU Commission must seize the opportunity to become by far the largest green bonds-issuer worldwide, I hope that the president Ursula von der Leyen will be able to make a decision in this direction very quickly," Canfin said.

First and biggest?

"This would not only contribute to significantly boost the green bonds markets globally but it will also strengthen the role of the union as a global trendsetter for green finance," he added, saying that the markets are eager for institutional issuance of green bonds.

"[Potential investors] have no concerns that the market could absorb such a volume of green bonds," he also said.

The green bond market has exploded in recent years - but it still constitutes only 3.7 percent of the total global bond issuance.

The French MEP is also calling for an independent committee in charge of monitoring what the capital raised through the green bonds will concretely finance - an initiative that Paris implemented in 2016 for its first issuance of sovereign green bonds.

EU green bonds come under consideration after Germany's issuance of its first green bonds in early September - by which it seeks to raise up to €11bn alone this year. France, for its part, has issued around €27bn in green bonds in the past three years.

In fact, nearly 40 percent of total green bond issuance was located in the EU between 2007 and 2020.

Additionally, experts estimate that EU green issuance would also stimulate private sector green bond-issuance, since the EU tends to leverage private money for its investments, for example, by co-financing projects with the private companies.

However, a report from the Bank for International Settlements (BIS) revealed on Monday that there is no evidence that green bond issuance is directly linked with a reduction of carbon emissions overtime - at least at company and corporate level.

For example, Spanish oil company Repsol became the first refiner to sell green bonds in 2017 - which raised greenwashing concerns.

The BIS report calls for a standardised rating system that ranks how green companies actually are.

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