Germany’s bonds are going green.
The debt-averse country will issue its first green bonds — debt that finances environmental projects — next year, according to a tweet from the Finance Agency on Thursday. In addition to trying to help the planet, the green bonds might be a way to get Germany to spend much-needed funds and stimulate its economy.
Poland issued the first sovereign green bond in 2017, followed by France, the Netherlands, Chile, Indonesia, Nigeria and other countries. In the U.S., there are no green Treasuries, but local governments are picking up the slack.
The European Union will need as much as $321 billion a year in additional financing to meet its climate-neutrality goal by 2050, according to Bloomberg News. Sovereign green debt is a growing sector, with $76 billion issued this year, up 60% from 2018, according to data compiled by BloombergNEF.
Green federal securities “are to be issued for the first time in the second half of 2020, in the form of so-called green twin bonds,” Germany’s Finance Agency said in a tweet, translated by Twitter, Thursday.
Germany will issue $8.9 billion to $13 billion of green bonds at its mid-year auctions, people familiar with the plan told the Financial Times. The new debt will be “twinned” with other bonds of the same maturity and coupon.
The country, home to Europe’s largest economy, has its been on the verge of recession this year, and is facing another year of sluggish growth in 2020, the Bundesbank said recently. One effort to stimulate growth is Chancellor Angela Merkel’s $60 billion Climate Protection Program 2030 to cut carbon emissions.
“German government bonds are the benchmark ‘risk-free’ assets in Europe,” Wolfgang Bauer, a money manager at M&G Plc., told Bloomberg. “It’s fair to say that there would be demand.”
Many asset managers are investing in green bonds because pension funds, institutions, and individuals, want their portfolios to reflect their values.
Issuance of green bonds has rocketed in response to the European Central Bank’s announcement it was going to make climate change a “mission-critical” priority, a stance that has raised hopes that the bank could increase its purchases of the debt class.
- Sweden issued $8.26 billion in green bonds in the year through November, up from $6.2 billion in 2018, according to data by the Climate Bonds Initiative, Expert Investor reports.
- Non-sovereign green debt will be needed to mitigate climate change, S&P Global Ratings said in December. This sector is growing, and the Climate Bonds Initiative sees interest in land-use bonds in the green bonds market. The CBI launched its Forest Criteria in 2018 and is set to launch its Agriculture Criteria in January.