{"id":96708,"date":"2020-09-08T06:07:22","date_gmt":"2020-09-08T04:07:22","guid":{"rendered":"http:\/\/beta.next-finance.net\/?p=96708"},"modified":"2020-11-03T15:53:34","modified_gmt":"2020-11-03T14:53:34","slug":"german-government-to-introduce-concept-of-green-twin-bonds","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/german-government-to-introduce-concept-of-green-twin-bonds\/","title":{"rendered":"German Government to introduce concept of Green Twin Bonds"},"content":{"rendered":"

Germany is introducing a new concept of \u201cGreen Twin Bonds\u201d, where a green bond is issued with the same maturity and
\ncoupon as a conventional bond. The green bond is a separate bond with a smaller issue volume than the conventional
\nbond. The aim of this structure is to ensure that the issuance of green bonds does not negatively influence the overall
\nliquidity in German government bonds. It also makes it easier for there to be a natural diversification between
\nconventional and green bond investors. <\/p>\n

Main terms of a green twin<\/strong>
\n\"-982.jpg\"<\/a><\/p>\n

\u201cWe strongly support the issuance of green German government bonds,\u201d<\/em> says Bram Bos, Lead Portfolio Manager Green
\nBonds at NN Investment Partners. \u201cThe concept of \u201cGreen Twin Bonds\u201d is a new and innovative form of green bond
\nissuance we favour. We think this concept is a much better option than the concept currently being explored by the
\nDanish government, which is looking to issue separate green labels or stickers which could be attached to any
\nconventional bond\u201d<\/em><\/p>\n

Germany is the third AAA-rated country to start issuing green government bonds, after the Netherlands in 2019 and
\nmore recently Sweden on 1 September 2020.<\/p>\n

Major green bond sovereign issuers[[Federal Republic of Nigeria, Republic of Fiji, Republic of Lithuania and Republic of Seychelles have also issued
\ngreen bonds, but the size was very small.]]<\/strong>
\n\"-981.jpg\"<\/a><\/p>\n

\u201cWe think this is an important milestone for the green bond market as the German government bond market is one of
\nthe most important reference points in the capital markets,\u201d<\/em> continues Bos.
\n\u201cClearly the growth of the green bond
\nmarket keeps on accelerating and the strong increase in government issuance gives more investors the chance to
\ngreenify their full fixed income portfolios\u201d<\/em><\/p>\n

Germany is committed to being almost climate neutral by 2050. In November 2016, the German federal government
\nadopted the Climate Action Plan 2050, making the country one of the first to submit its long-term greenhouse gas
\nemission strategy to the UN, as required under the Paris Agreement. This plan outlines the basic principles for
\nimplementing the country\u2019s climate change mitigation strategy to reach 80 to 95 percent reduction in greenhouse gas
\nemissions by 2050 compared to 1990 levels.<\/p>\n

On 2 September, Germany issued EUR 6.5 billion worth of bonds with a maturity of 10 years. In contrast to some other
\ncountries, like the Netherlands, Belgium and France, the German government plans to build a full yield curve. This gives
\ninvestors more options to greenify their fixed income portfolio at several different points along the yield curve. After this
\ninaugural green bond, Germany is expected to be a regular issuer, issuing around EUR 10 billion per year in green bonds.<\/p>\n

Germany has identified five sectors to which they can allocate the proceeds of their green bonds. These are transport;
\ninternational cooperation; research, innovation and awareness raising; energy and industry; and agriculture, forestry,
\nnatural landscapes and biodiversity.<\/p>\n

\u201cAlthough we think it is a positive development that Germany has started issuing green bonds, the country\u2019s green bond
\nframework is not as clearly aligned with international standards like the Green Bond Principles and the EU and Climate
\nbond Initiative taxonomies as some other green government bonds\u201d<\/em> says Bos. \u201cFor example, a large portion of these
\ngreen bond proceeds will be allocated to trains and rail infrastructure, which could also include the freight transport of
\nfossil fuels. We miss the \u2018do no harm\u2019 assessment in this green bond framework, which is one of the pillars of the EU
\ntaxonomy and EU Green Bond standard. However, we also see some positives and commend the German government\u2019s
\nambition to only allow green hydrogen production in the eligible use of proceeds. Green hydrogen is produced using only
\nrenewable energy and the German renewables market is well placed to develop this exciting industry innovation and
\nmake it cost competitive.\u201d<\/em>