For the first time, Germany wants to promote environmental projects that are financed by tapping the financial markets.
According to Rita Schwarzeluehr-Sutter, the bonds will help to raise the profile of the federal government as a safer
Investments related to the Twin Bonds will promote renewable energy and support clean transportation systems.
Germany issued its first “green” bond, which has the same coupon as traditional German government bonds, to promote renewable energy and clean transport systems.
The German government announced at the end of last year its intention to issue the bonds in the second half of 2020 to support the country’s fight against climate change. Through its Ministry of Finance, the government would raise up to $13 billion in 2020 to support the “green” project.
Joerg Kukies, State Secretary in the Ministry of Finance, said
“From now on, the German government will issue green federal bonds every year. In this way, we are creating a strong dynamic towards a more robust sustainable financial market”.
“Our innovative ‘twin bond’ approach is designed to attract new investors and issuers to the green bond market, acting as a catalyst to drive more investment in a greener economy.
Following the announcement at the end of last year, Germany has earmarked spending of $63 billion over the next three years as part of the climate project – including the introduction of a carbon tax to reduce greenhouse gas emissions by 55% by 2030 compared to decades ago.
Germany’s German government securities are among the safest in the world, with profits having been traded on the negative side for some time. This means that investors will have to pay for the lending of government funds. The benchmark bond with a ten-year maturity, for example, is currently trading at yields below -0.5%.
It is important to know that the first green bond will be a 10-year green federal bond – it is scheduled for next month. It will be part of the green twin of the conventional ten-year bond issued on 17 June 2020.
Germany, which experienced an economic downturn after the coronavirus pandemic, made extraordinary new debts and declared that green bonds ensure significant changes for international climate protection and the fight against climate change.
Rita Schwarzeluehr-Sutter, Parliamentary State Secretary at the Federal Environment Ministry, said the twin bonds would raise the government’s profile as a safe haven.
“With its climate package, the German government has set the course for massive investment in green and climate-friendly technologies. The financial sector can also contribute to achieving this goal.
She also added:
“Green federal bonds create a clear incentive. This shows how green and climate-friendly business can be made transparent and predictable,” she said.
The set of rules
At the end of last year, the German Finance Agency laid down the rules that determine which financial product is “green” and “sustainable”.
According to the rules, any financial product claiming to be green or sustainable will have publicly declared what proportion of its investment is environmentally friendly.
The German Finance Agency will always assign green securities to the expenditures of the previous fiscal year. The agency has categorized more than $15 billion as green spending in agriculture, transport, forestry and natural landscapes.