The European Union will unleash as many green bonds as the world issued last year, testing the level of investor interest in financing a shift toward cleaner economies. The bloc plans to create up to 225 billion euros ($266 billion) of green debt, which will propel it from a debut issuer to the largest player in the nascent market in coming years. With no set definition on what makes a green bond, its criteria are likely to set a benchmark standard for others to follow.
The plans are undoubtedly a big win for the industry — just four years after the first sovereign green bond issuance. Yet its efforts will gauge whether such assets can attract mainstream funds outside Europe, or find demand limited to an enthusiastic but specialized group of investors.
“From a market point of view, a development point of view and a climate change point of view,” the EU’s offerings are “going to alter the landscape,” said Mitch Reznick, head of sustainable fixed income at Hermes Fund Managers Ltd. “From a value point of view, this works best for thematic funds, where value isn’t necessarily the primary driver.”
The huge issuance plan is the latest to fund pandemic rescue packages, leading to a surge in global debt. So far there’s been no shortage of demand for green assets, thanks to a boom in environmentally-conscious investing. These specialized funds helped Germany’s debut green bond this month attract five times as many orders as the debt available.
The number of sustainable indexes mutual funds and exchange-traded funds and their assets of $250 billion have both doubled in the past three years, according to Morningstar. Frans Timmermans, the EU’s climate chief, sees this deeper pool of investors as an opportunity for the bloc to fund change.