The EU’s first green bond attracted more than 135 billion euros in orders

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On Tuesday, as Brussels began its efforts to become the world’s largest issuer of sustainable bonds, the European Union attracted strong investor demand for its first green bond.

The sale of 12 billion euros of 15-year bonds attracted more than 135 billion euros in orders, making it the largest green bond transaction, slightly surpassing the UK’s first issue of 10 billion pounds last month.

Tuesday’s issuance is the first of the European Commission’s estimated 250 billion euro green bond issuance, about one-third of the EU’s 800 billion euro Covid-19 recovery fund, as Brussels aims to position itself as an emerging sustainable finance The leader of the market. The proceeds will be transferred to member states for use in areas such as energy efficiency, transportation and nature protection.

Brussels has issued green bonds with many member countries including Germany, France, Spain, Italy and Poland. As the fund management industry focuses on environmental, social and governance-focused investments or ESG, the demand for green securities has been strong.

Floltje Merten, an interest rate strategist at ABN AMRO, said that the European Union, along with other recent issuers, attracted a price premium for its green bonds, which means it achieved a slightly lower financing cost on Tuesday’s issuance. . She said that a yield of about 0.43% means that borrowing costs are about 0.02 percentage points lower than expected for equivalent traditional bonds.

Nevertheless, the rapid growth of the green bond market, especially due to Brussels’ ambitious issuance plan, may ease the relative scarcity of green sovereign debt. “As the number of green bonds increases,’greenium’ may be under pressure,” Merten said. “This is what we have seen in the corporate bond field.”

Brussels’ green bonds will be based primarily on EU sustainable finance rules known as taxonomy, although this has not yet been finalized due to government disagreements over whether to include natural gas and nuclear energy as green activities.

As part of its recovery fund, the European Community will screen national spending plans to ensure that cash is used to fund real environmental projects, while aiming to eliminate so-called “greenwashing”. Member states must spend at least 36% of national recovery envelopes on green spending.

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