Eco-bond is intended for environmental projects: the federal government enters the green bond market

Some European countries are already doing it – now the federal government is following suit. In the future, investors will be able to buy government bonds and thus support projects for more climate protection and the energy transition. It should be possible to convert the papers into normal bonds without any problems.

In September, the federal government is launching a loan to finance eco-projects for the first time. The paper should have a minimum volume of four billion euros and a term of ten years, as Finance State Secretary Jörg Kukies said. Another green bond issue is planned for the fourth quarter, bringing the total volume to around eleven billion euros this year. Further bonds for 2021 are planned. "We can thus guarantee a permanent issue of green securities and ensure that we have a basis for further issues," said Kukies.

The collected capital is to be allocated to specific energy and environmental projects from the past year. According to EU directives, it would also be possible to use it to finance projects that are three years old. The federal government wanted to create more security for investors with the shorter deadline, explained Kukies. "Of course, they want to know when they subscribe to green government bonds that it is green if it is green."

Projects for almost 13 billion euros

In total, the federal government identified expenditures of 12.7 billion euros from seven ministries that could be considered for refinancing through eco-bonds. Specifically, the federal government has projects in the fields of transport, international cooperation, research, innovation and information, energy and industry, and agriculture and forestry in its sights. Among other things, the Green Bonds, which are known in technical jargon, are intended to promote clean transport systems and reduce CO2 emissions from vehicles.

The securities are to be placed in the form of a twin bond, i.e. parallel to a conventional federal bond with the same term and the same coupon. This gives investors the advantage that they can convert green bonds into normal federal bonds at any time. This market is much more liquid, and institutional investors in particular value unproblematic tradability. At around 300 billion euros in the euro area, the market for green bonds is comparatively small.

Only about a tenth of this is accounted for by government green bonds. Germany is late with the issue of the first green bond. Countries like France and Denmark, but also companies and banks, have been issuing such papers for some time. The demand for securities, the proceeds of which are used for ecological projects, is growing steadily worldwide.

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