All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
CommentLeader

Green market doesn't need govvies

sustainable FA 230

Market participants are clamouring for sovereigns to join France and enter the green bond market. It would likely help the market, but would it help the environment?

It is often claimed that sovereign issuance would broaden the green investor base by providing liquidity and size to a market starved of both. That may well be true but the sort of investors attracted to a market by sovereign issuance are... sovereign investors.

Would such investors become any more likely to buy green bonds from small, emerging market corporate borrowers of the sort that truly need green cash?

Sovereigns, by and large, have extremely easy access to funding. While they have the capacity to shape the world by choosing to fund environmentally sound infrastructure, the truth is that they can do it without green bonds.

Where green funding makes a real difference is at the other end of the credit spectrum: borrowers which would not otherwise be able to raise funds at market raising private capital to achieve environmental aims.

Sovereigns should be hell-bent on facilitating this sort of activity. Tax incentives, credit enhancement, anchor investments, risk sharing, aggregation, education, etc, are all tools to mobilise green funding.

Perhaps some of these stimuli could be funded through sovereign green bonds, but would that bring any advantage? Deploying money, however it has been raised, to encourage small, low-rated issuers into the green bond market should be the aim.

Simply relabelling a portion of regular government funding as green would be a distracting waste of green ink. So it should not be too much of a surprise that, when questioned this week about whether they planned to issue green bonds, funding officials from five European countries said more or less that.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree