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EU moves to issue green bonds for first time

Lucy Harley-McKeown
·2-min read
Glacier Lagoon with icebergs from above. Aerial View. Cracked Ice from drone view. Background texture concept.
Climate change is increasingly factored in to investment decisions. Photo: Getty

Reports emerged on Sunday that the European Union has made moves to issue green bonds for the first time.

Johannes Hahn, commissioner for the EU budget said the bloc is “exploring the possibility” of selling sustainable bonds in comments published by the Financial Times.

As the climate crisis becomes ever more pressing, investors are increasingly looking to put their money into more sustainable products.

In July, this took the form of an agreement signed by EU leaders allowing the borrowing of €750bn (£694.5bn, $888.6bn) on international financial markets. According to the FT, this will fund the “Next Generation EU” project, touted to hand out grants and loans to help member states recover from the coronavirus pandemic.

Unemployment and insurance schemes will be funded by an additional €150bn.

READ MORE: Dutch government to press ahead with controversial CO2 tax for industry

Green bonds have come under consideration as critics have called for the debt to be used to help green causes.

It’s thought that €200bn of the total €900bn will be spent on green initiatives, matching a pledge by EU leaders to spend at least 30% of the recovery money on sustainable investments.

The move follows Germany’s issuance of its first green bonds at the beginning of September, as well as Sweden France, Poland, Ireland and the Netherlands.

Germany hopes to raise up to €11bn from green bonds this year, with a second bond planned. France has issued around €27bn worth of green bonds in the past three years.

What exactly are green bonds?

So-called “green bonds” have become increasingly popular in recent years, and are a way of raising money for environmentally friendly purposes, such as renewable energy, restoration of ecosystems or investment in clean transport.

The European Investment Fund introduced the first green bond in 2007, under the name Climate Awareness Bond, and their popularity among investors has grown globally ever since.

2017 saw the boom of the green bond, as $161bn were issued worldwide. Figures from Moody’s estimate a total of $263bn bonds were sold last year, an enormous increase from the $1bn in green bonds sold a decade ago.

These types of bonds, however still only represent 1% of the global bond market.

Benefits of green bonds are first and foremost the support for sustainability, but, cynically, they can also improve investors reputations.

Issues some have raised about this type of investment is that it does little to encourage governments to increase funding for other environmental projects.

READ MORE: Germany raises €6.5bn from first-ever green bond