EU’s Landmark Green Bond Issuance Will Begin in October

(Bloomberg) -- The European Union will start selling green bonds under its pandemic recovery fund plan in October, the first step toward becoming the largest issuer of environmentally-friendly debt in the world.

The EU’s debut in a burgeoning ethical debt market is set to follow inaugural sales from the likes of Spain and the U.K. this month. The EU Commission also announced that it would sell conventional bonds via auction for the first time -- in addition to syndications via banks -- and will begin to issue short-dated bills from Sept. 15.

The bloc is set to become the biggest issuer of green bonds globally, using them to finance almost a third of its 800 billion-euro ($950 billion) recovery plan. It’s also trying to combat greenwashing, having issued its own green bond standards and a framework for what economic activities can be deemed sustainable.

“The member states’ determination to promote a sustainable transition matches growing market demand,” Budget Commissioner Johannes Hahn said at a press briefing Tuesday. “It has to be proved that investments have a positive ecological impact.”

The coordinated effort by member states to fund a greener recovery from the pandemic shored up confidence in the bloc last year. The bonds are seen as a potential future haven to rival U.S. Treasuries, after the EU’s debut for social bonds in 2020 produced the biggest-ever debt orderbook.

Hahn said the bloc’s funding plan would remain unchanged for the rest of the year, making up around 80 billion euros of long-term bonds for 2021. Under its issuance calendar, the Commission will be holding one auction and one syndication per month for its bonds.

Gold Standard

The rush to start the funding means the green debut will come before lawmakers and member states have actually approved the Commission’s green bond framework, potentially undermining its goal to make that a “gold standard” for other borrowers around the world.

The Commission said the debt will adhere to its framework where feasible, and also to widely-used principles from the International Capital Market Association. It has been reviewed by a second party opinion provider, Vigeo Eiris, part of Moody’s ESG Solutions.

The EU’s joint debt will outperform sovereign issuers such as France and the Netherlands for the rest of the year, according to Sphia Salim, Bank of America Corp.’s head of European rates strategy. She expects the green bonds could come at three to five basis points richer than regular EU debt, with the largest premium concentrated in the 10- to 20-year sector.

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