Brussels to issue ‘Covid green bonds’ as part of pandemic recovery effort

Brussels is to issue its first Covid-19 green bond as part of its efforts to become the world’s biggest issuer of sustainable debt. 

The European Commission on Tuesday said it would tap debt markets for a sale of green bonds in October, raising funds for environmentally friendly reforms and investment in EU member states as part of the union’s pandemic recovery effort. 

The issue will be the first of an expected €250bn of EU green bonds, making up about 30 per cent of the bloc’s €800bn Covid-19 recovery fund. “This will make the EU the largest green bond issuer in the world, and foster investments and innovation,” said Johannes Hahn, EU budget commissioner.

The commission has sought to position itself as a global leader in green finance and regulation, setting out rules to help investors define what is or is not sustainable economic activity.

The global green bonds market has boomed in recent months, with total issuance in the asset class topping $200bn this year.

“Judging from our experience with previous issuances, we expect a high demand for Next Generation EU green bonds,” said Hahn, adding that issuance could expand if there was sufficient investor interest.

As part of its green bonds programme, the commission will screen the spending plans of EU member states to assure investors that proceeds will be used to fund genuinely sustainable activity and stamp out so-called “greenwashing”. EU governments must spend at least 37 per cent of their total recovery fund money on meeting green aims, such as energy efficiency, transport and nature protection. 

EU countries will have to regularly update Brussels on how the money is spent, with the commission reporting to investors on the funding every year. “We have a very robust framework to give investors the confirmation that their investments are actually green,” said an EU official.

The commission’s green bonds will be based largely on the EU’s sustainable finance rules known as the taxonomy — although this has yet to be finalised with EU governments divided over whether to include gas and nuclear as green activity.

Hahn said the green recovery bonds cannot be used to fund nuclear power in the EU, which has proven to be among the most contentious stipulations. An EU official added that natural gas projects would also be excluded from the green bond rules.

Brussels started issuing bonds to fund its €800bn pandemic recovery programme in July and has so far raised €45bn. The first EU green bond sale is due to take place on October 21.

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​Letters in response to this article:

Sustainability is a priority for small businesses too / From Petter Reistad, Chief Executive, Celsia, Oslo, Norway

Bloc can harness data to stamp out greenwashing / From Edward Stevenson, Group Head of Capital Markets, IQ-EQ, London SE1, UK