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The EU drew strong investor demand for its inaugural green bond on Tuesday, as Brussels launched its efforts to become the world’s largest issuer of sustainable debt.
The sale of € 12bn of 15-year debt attracted more than € 135bn in orders and marked the biggest green bond deal, narrowly eclipsing the UK’s £ 10bn debut last month.
Tuesday’s issue is the first of 250 billion euros expected in green bonds from the European Commission, representing around a third of the 800 billion euros of the bloc’s Covid-19 stimulus fund, as Brussels aims to position as a leader in the booming sustainable finance market. Profits will be returned to Member States to be spent in areas such as energy efficiency, transport and nature protection.
Brussels has joined a host of member states, including Germany, France, Spain, Italy and Poland, in issuing green debt. Demand for green securities has been intense due to the focus of the fund management industry on environment, social and governance, or ESG investments.
The EU has joined other recent issuers in attracting a price premium for its green bond, which means it got a slightly lower cost of financing in Tuesday’s sale, according to strategist Floortje Merten. in ABN Amro rate. The yield of around 0.43% represents a cost of borrowing around 0.02 percentage point lower than what would be expected for an equivalent conventional bond, she said.
Nonetheless, the rapid growth of the green bond market, notably due to the ambitious issuance plans from Brussels, should alleviate the relative scarcity of green sovereign debt. “As the number of green bonds increases, the ‘greenium’ could be under pressure,†Merten said. “It’s something we’ve seen happen in the corporate bond world.”
The Brussels Green Bonds will be largely based on the EU’s sustainable finance rules known as taxonomy, although this has yet to be finalized as governments are divided over whether to include gas and nuclear as a green activity.
As part of its stimulus fund, the EC will review national spending plans with the aim of ensuring that the money is used to finance genuine environmental projects, while also aiming to eradicate so-called greenwashing. Member States must devote at least 36% of their national stimulus envelopes to green spending.
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