Air pollution rises from cooling towers at a lignite fired power plant in Germany. The EU is expected to increase its target for cutting its carbon emissions.
Air pollution rises from cooling towers at a lignite fired power plant in Germany. The EU is expected to increase its target for cutting its carbon emissions. © Bloomberg

The European Commission is considering issuing green bonds for the first time, as investors and politicians call on Brussels to raise sustainable debt as part of its €750bn borrowing spree to fund Europe’s economic recovery from Covid-19. 

Johannes Hahn, commissioner for the EU budget, told the Financial Times that Brussels was “exploring the possibility” of selling sustainable bonds as part of an unprecedented debt-raising exercise that is expected to begin early next year. 

Green bonds are a way of raising money for environmentally friendly purposes; issuance has exploded in recent years, with a total of $263bn sold globally last year, according to figures from Moody’s, up from less than $1bn a decade ago.

“The commission is exploring the possibility to issue part of its bonds in formats that demonstrate its commitment to sustainable finance — including social and or green bonds,” said Mr Hahn. 

In July EU leaders sealed a landmark agreement permitting the commission to borrow €750bn on the international financial markets to fund a “Next Generation EU” project that will hand out grants and loans to help member states recover from the severe economic damage of the pandemic. The commission will also raise an additional €150bn to help fund government unemployment insurance schemes. 

The €900bn issuance dwarfs the commission’s previous debt-raising and will help make the EU one of Europe’s largest bond issuers. Brussels’ decision to consider selling some of the debt in the form of green bonds comes after calls from investors and politicians for the EU to use its recovery fund to help Europe’s green transition. 

Thomas Buberl, chief executive of French insurer Axa, and Pascal Canfin, the head of the European Parliament’s environment committee, told the Financial Times that €200bn of the €750bn should be in the form of green bonds. That would match a promise by EU leaders to spend at least 30 per cent of the recovery fund on sustainable and low-carbon investment. 

Column chart of Global green bond issuance ($bn) showing Rapid rise of green bonds

Mr Buberl said there was “huge demand” for green bonds from long-term investors like Axa. “We believe they serve our long-term financial interests as well as support the transition to a low-carbon economy,” he said.

Mr Canfin said the recovery fund was an opportunity for the EU “to become by far the largest green bonds issuer worldwide”.

“This is currently being discussed at the highest level in the European Commission and I hope that President Ursula von der Leyen will be able to make a decision in this direction and announce it very quickly,” said Mr Canfin, who is a member of Emmanuel Macron’s party. 

EU governments last year signed up to a pledge to become the world’s first carbon-neutral continent by 2050, a transition that will require trillions of euros in investment.

Mrs von der Leyen will this week announce Brussels’ ambition to raise its emissions cutting target for 2030 from the current 40 per cent to “at least 55 per cent”, compared with 1990 levels. 

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Countries including Germany, the Netherlands, France, Sweden and Poland have all issued green bonds. Germany’s maiden €6bn foray into the market this month was five times oversubscribed.

Axa’s Mr Buberl said the rapid increase in green bond issuance and strong investor appetite in the relatively new market would eventually mean green bonds trade in a similar fashion to conventional sovereign debt. 

“I would expect equivalent market conditions between green bonds and conventional bonds . . . [for example] the 20-year French sovereign green bond, which has an attractive yield and maturity profile for private investors,” he said.

However one EU official said the green bonds would not come to market quickly and the early rounds of the commission’s bond sales would be in the form of conventional debt. 

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