On Tuesday, the EU drew strong demand from investors for its inaugural green bond, as Brussels began its efforts to become the world’s largest issuer of sustainable debt.
The 12 12 billion sale of 15-year debt attracted more than 5 135 billion in orders and marked the largest green bond deal, narrowing the UK’s £ 10 billion debut last month. The sale comes as Europe continues to fight the energy crisis, which paints a picture of the growing need for diversified and renewable energy sources.
Tuesday’s issue is the first of the European Commission’s expected ের 250bn of green bonds, about a third of the block’s € 800bn Covid-1 recovery fund. This income will be spent on electricity efficiency, transportation and nature conservation to member countries.
EU Budget Commissioner Johannes Hahn said the EU’s first green bond would “help strengthen the EU and the euro’s role in a sustainable finance market”. “This will serve as inspiration for other issuers.”
Brussels has joined many member states in providing green issuance, including Germany, France, Spain, Italy and Poland. The demand for green security has intensified due to the environmental, social and governance focus or ESG of the fund management industry.
“This will increase the growth of the first issue [green bond] While further improving its liquidity in the market, ”said Johan Pla, Senior Portfolio Manager at Oxa Investment, adding that the green-green bond issue must reach ০০ 200 billion, double the total by 2020.
The EU has joined other issuers recently to attract a price premium known as “Greenium” for its green bonds, which means it has achieved slightly lower funding costs in Tuesday’s sale. Han said the 0.45 percent yield represents a cost of about 0.025 b of a percentage point under what would be expected for an equivalent conventional bond.
Nevertheless, the rapid growth of the green bond market, at least not because of the block’s ambitious issue plan, will probably alleviate the relative lack of green sovereign. “As the amount of green bonds increases, the ‘Greenium’ may come under pressure,” said ABN Amro Rate strategist Flortz Marten. “It’s something we’ve seen happen in the corporate bond world.”
Brussels’ green ties will be based primarily on EU rules for a sustainable economy, although it has not yet been finalized because the government is divided over whether to include gas and nuclear as green activities.
As part of the recovery fund, the commission will show national spending plans in an effort to ensure the use of funds to finance actual environmental projects aimed at stopping so-called green washing. Member states must spend at least 36 percent of their national recovery envelopes on green.