Germany to launch ‘green bond’ with first issue in 2020
The move follows an agreement by the EU on a new set of rules governing which financial products can be called ‘green’ and ‘sustainable’
Berlin — Germany will launch its first “green bond” with a multi-billion-euro issue in the second half of 2020, to tap in to the booming market for sustainable finance, the government’s finance agency said on Thursday.
“The German federal government intends to support the development of sustainable financial markets and, in particular, the green market segment by issuing green German government securities,” the finance agency said.
Tammo Diemer, the agency’s MD, put the issue amount, in billions, somewhere between a high-single digit to low double-digit. More details will be published in the quarterly updates of the agency’s issuance plans, Diemer said.
The green bond, which is part of the government’s efforts to roll over maturing debt, will be designed in the form of green twin bonds; this means that the government will issue “green bonds with the same maturity and coupon as conventional securities, the agency said. The green twin bonds will replace part of the conventional twin bond’s auction volume, the agency said.
“In accordance with the established Green Bond Principles, the proceeds from green German government securities will completely be allocated to already existing expenditures with a positive ecological-sustainable effect,” it added.
Set of rules
The move follows an agreement that was reached by EU member states earlier this month on a new set of rules governing which financial products can be called “green” and “sustainable”.
Under the agreement, all financial products that claim to be green or sustainable will have to disclose exactly what proportion of their investments are environmentally friendly.
Overall, the German government plans to borrow more money in 2020 than it did in 2019. Excluding inflation-linked debt, the agency plans to issue €210bn of debt in 2020, it said. That compares with €196bn in 2019.
The agency said it plans to issue €148bn in longer-term nominal capital market instruments and €62bn in money-market instruments. It added that it will also issue between €6bn and €8bn in inflation-linked securities.
The agency needs to take on more debt despite an expected budget surplus because it has to repay old debt for which the government does not have enough funds from current revenues. This means the auction calendar is in line with Chancellor Angela Merkel’s budget policy of not incurring new debt, a fiscal goal also known as the black zero.
The finance agency generally builds a buffer in and sometimes revises its debt issuance plans later in the year.