Germany Debuts Green Bonds in 2020 to Support Climate Action

(Bloomberg) -- Germany will join European peers like France and Poland next year in selling green bonds, tapping rising demand and favorable issuance costs for such debt as it boosts investments to cut carbon pollution.

Europe’s benchmark issuer will sell about 10 billion euros of the bonds from mid-year via auctions, “twinning” emissions with regular bonds of the same maturity and coupon, the Federal Finance Agency said on Thursday as part of its overall issuance calendar for 2020. The bonds will be fully convertible with their sister bonds ahead of maturity.

The federal government will sell 210 billion euros ($233 billion) of bonds and bills in 2020, the agency said. Thereof, bond sales will amount to 148 billion euros, while shorter-maturity bills are to total 62 billion euros. Some 180 billion euros of the issuance will be used to amortize existing debt.

Pressing climate protection challenges have increased financing needs for Chancellor Angela Merkel’s government to help meet climate targets. Sovereign green bond issuance will have a supporting role and will not increase net debt, the government has said.

In time, investors will be able to purchase the bonds “all along the interest rate curve,” the agency said. The government aims to establish a “liquid” green bond benchmark in the euro area, it added. Revenue from the sales will be channeled “one-to-one” in financing green projects. The agency may also in time sell 30-year green bonds, it said.

“Twinning” the green bonds entails topping up regular bonds of the same maturity though the top-up volume won’t be sold to investors but bought by the agency “in support of market management,” the agency’s Tammo Diemer said in a press conference today.

The agency will sell the bonds via auction at the moment as the instrument offers all potential investors a fair and fully accessible market to acquire the debt. ‘There are also good reasons to use a syndicate,” he said.

Germany may assign some revenue from green bond sales to help Merkel’s sweeping 54 billion euro ($60 billion) Climate Protection Program 2030, a move to double down on cutting pollution that’s due to gain final parliamentary approval in Berlin this week. The government may spend as much as 270 billion euros by 2030 to achieve program targets, according to the legislation’s pre-amble.

Green bond issuance has so far channeled by proxy through the KfW Group development lender, in which the government has an 80% stake. The Frankfurt bank started selling the bonds in 2015 and this year sold the debt in a record 7 currencies, an activity which it says complements the plan to sell sovereigns in euros.

Demand for sustainable debt is soaring globally as investors from pension funds, central banks and private lenders scoop up the debt alongside assets in their portfolios. Investor appetite and an enduring favorable interest environment mean that green bond issuers can cut emissions costs in spite of charges for third-party compliance verification and monitoring.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Raymond Colitt

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