What are Green Bonds?
Green securities, or bonds, represent a special part of government bonds. These are to be used as a financing instrument exclusively for projects that have a long-term positive impact on the environment.
“Green federal securities” in Germany
Since 2020, the Federal Republic of Germany has created a high level of transparency on allocated green expenditure in the federal budget by issuing green federal securities and the associated reporting.
In addition to reducing interest costs, the Federal Government and Finance Agency are striving to significantly strengthen and decisively develop the market for environmentally friendly and sustainable forms of investment.
A green yield curve for the euro area is to be established similar to the conventional BUND curve, whereby the interest rate reference for the green euro financial market is to be set with maturity focuses of 2, 5, 10 and 30 years. A green and transparent investment option with first-class creditworthiness is available to market participants with a wide range of investment horizons.
In 2022, trading in green German Government securities reached a volume of 75 billion euros, after 52 billion euros in the previous year. Green securities reached a share of 1% of the trading volume in all German Government securities in both years.
“Reasons Federal Bonds” in Switzerland
The publication of the first green federal bond was positively received by the markets. The new instrument aroused great interest with offers totalling 974 million Swiss francs. The Federal Treasury receives 766 million dollars with an annual yield of 1.47 %.
It is likely that the majority of green bonds will be held by national investors, similar to conventional bonds. The main focus is on insurance companies, investment funds and pension funds.
Issuers have issued green bonds worth almost CHF 11 billion on the Swiss capital market. This corresponds to a share of 1.9 percent of the total capital market in Switzerland. So far, mainly banks and insurance companies have issued the permits. In addition, the cantons of Basel-Stadt and Geneva participated in the trading.
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“Green Bonds” in France
At USD 40 billion (EUR 34 billion), the country issued the most green bonds of any country in the world.
Agence France Trésor, which oversees sovereign debt and was the first sovereign issuer of a benchmark-sized green bond in 2017, launched the French issue by selling its green OAT (Obligations assimilables du Trésor). A further issue in 2021, with around EUR 4 billion of the EUR 7 billion offering going to green investors.
The SRI labelling scheme, which came into force in 2016, is regularly updated. It imposes strict requirements on fund managers to demonstrate the methodical and quantifiable integration of ESG and extra-financial analysis in investments. Article 173 of the Energy Transition for Green Growth Act, introduced shortly after COP21, was also highly praised by the public. The Sustainable Finance Disclosure Regulation (SFDR), which comes into force in March 2021 and aims to create a uniform standard for reporting on financial assets in European countries, was hailed as groundbreaking and inspiring.
Italy and the “green bonds”
With an issuance volume of almost EUR 8 billion and an order volume of EUR 80 billion, Italy has released the largest ever green government bond issue by a European issuer in 2021. Alongside Poland, Ireland, Sweden and the Netherlands, which have joined the green bond market, the high demand shows how popular green bonds are. As the issuing banks were able to lower the premium over typical Italian bonds to 0.12 percentage points, the bond was offered with a yield of 1.547 %.
