Guru Gyan
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Guru Gyan

Green Bonds To The Recovery

The European Union has pitched to sell green bonds worth 225 billion euros ($267 billion) as part of its pandemic recovery fund.

The European commission’s president Ursula von der Leyen in a key policy address announced that the European Union (EU) would sell 225 billion euros ($267 billion) of green bonds as part of its 750 billion-euro pandemic recovery fund, which will be equivalent to roughly all the green securities sold globally last year.

The executive in her first state-of-the-union speech proposed targets to fight climate change in a move to cut industrial pollution and spur a green economic recovery.

What is a green bond?

A green bond is a bond whose proceeds are used to fund sustainable and environmental-friendly projects that have positive climate benefits. Green bonds were launched by a few development banks such as the European Investment Bank and the World Bank in 2007.

The issuance of such bonds has exploded in recent years, with a total of $263 billion sold globally last year up from less than $1 billion a decade ago, according to figures from Moody’s.

Sustainable financing

The European Commission has been considering issuing green bonds for the first time to raise sustainable debt as part of its €750 billion coronavirus rescue package.

Commissioner for the EU budget, Johannes Hahn told the Financial Times that Brussels was ‘exploring the possibility’ of selling sustainable bonds as part of an unprecedented debt-raising exercise that is expected to begin early next year.

In early September, Germany raised 6.5 billion euros ($7.7 billion) from the 10-year green bond sale, with demand more than five times that at 33 billion euros. Germany’s debut in the green debt offering witnessed a strong investor interest. The Netherlands, France, Sweden, and Poland have all also issued green bonds.

The pitch comes at a time when the EU has proposed stricter climate goals as it aims to tighten its emission-reduction target to at least 55% by 2030 and its ambitious climate change plan. This way EU leaders could spend a good part of the recovery fund on sustainable and low-carbon investment. This will help the EU recover from the economic damages of the pandemic as well as meet the goals to limit global warming.

Reuters reported that Executives from 30 of Europe’s leading companies including Deutsche Bank, Axa, Snam, and Royal DSM backed the EU’s Green Deal on Wednesday ahead of the commission’s address. They all pledged to overhaul their businesses to help the bloc achieve climate-neutrality by 2050.

The sale of the green bonds by the EU will bolster the green debt market with the EU leading other countries to follow its example of taking green financing to next level.

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