30% of EU €750bn recovery fund may be green bonds

Marion Amiot

By Mark McSherry

S&P Global Ratings said in a new report that the EU could become the main liquidity provider for a “green safe asset” if it carries out a proposal to finance 30% (€225 billion) of its planned €750 billion recovery fund through green bond issuance.

“EU green bond issuance on such a large scale would help respond to a fast-growing environmental, social, and governance (ESG) investor base and increase the size of the global green bond market by around 89% compared with total issuance in 2019,” said Marion Amiot, S&P Global Ratings Senior Economist in the report The EU Recovery Plan Could Create Its Own Green Safe Asset published on Wednesday.

The report said such a move would provide the European Central Bank, as well as other central banks holding large foreign exchange reserves in euro with investment-grade green assets of long duration.

EU green issuance would also likely stimulate private sector green bond issuance, since the EU tends to leverage private money for its investments.

“A larger pool of green assets would also help policymakers and central banks toward their aim to green the financial system,” said Amiot.

The green bond market currently represents only 3.7% of total global bond issuance — making it difficult to ask market players to build green portfolios.

“Details are still missing on the specific green and social content of the proposed “Next Generation EU” €750 billion fiscal plan to aid a post-COVID-19 pandemic recovery,” added S&P Global.

“However, the European Commission has indicated that 30% of funding will target climate-related projects.

“By issuing around €225 billion of green bonds, the EU would also become the largest supranational provider of liquidity for a green safe asset.

“By comparison, the European Investment Bank (EIB) has issued $33.7 billion green bonds since 2007.”