This Q&A with Saida Eggerstedt, head of sustainable credit at Schroders, explores impact of first German green bond issuance in September.
To what extent will the issuance by the German Federal Government support the development of sustainable financial markets?
First of all, this will help to establish a curve/ benchmark for green bond issuance from other EU national green bonds (so far, there are only French / Dutch / KFW).
Secondly, this gives more transparency to how the government can help different sectors to be more sustainable and support concerns such as improving biodiversity, international cooperation, green innovation and better public awareness, which are harder to foster through private green bonds issuance
Also, the use of the centralised UN Sustainable Development Goals framework in a sovereign context is welcome addition for the wider sustainable finance market.
When fund managers like Schroders meet and analyse German companies, we can use this backdrop to evaluate and actively engage with companies on their sustainability efforts helping them leverage this supportive national policy as demonstrated in this new bond framework.
How appealing are these bonds likely to be to investors in the current Covid-19 climate?
Investors, in general, tend to buy German sovereigns for liquidity and safety due to their high credit rating and stability. Covid-19 has negatively impacted many aspects of the economy, and yet CO2 emissions need to be reduced nonetheless, so green bonds issued by Germany offer an opportunity to move the dial towards Germany’s green agenda while helping foster a sustainable, and more environment friendly economy. This is very appealing.
Covid-19 has led to solidarity among politicians and policy makers and priorities have changed for a better sustainable world, so the timing of such issuance is also very apt.
What will be the difference between the newly issued German green bonds and the traditional securities?
These new bonds have a purpose to promote transparency and forward-looking sustainability.
While the industry leadership of Germany is well recognised, the green bond process, the use of proceeds, the reporting of impact and progress on the climate change agenda, nature preservation and green technology fronts – all make these bonds a core holding in a Sustainable benchmark fund.
Taking into account Germany’s plans to become a regular issuer of green bonds, we believe liquidity will improve over time, especially if most of new German issues are green and/or sustainability bonds.
For more details on the German green bond issuance, click here.