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Alternative Market Briefing

European green bond market set to explode

Monday, July 20, 2020

Laxman Pai, Opalesque Asia:

The EU could become the main liquidity provider for a green safe asset with a long duration by financing 30% (€225 billion) of its proposed €750 billion recovery fund through green bond issuance, said a study. "By issuing around €225 billion of green bonds, the EU would also become the largest supranational provider of liquidity for a green safe asset," says S&P Global Ratings.

By comparison, the European Investment Bank (EIB) has issued $33.7 billion green bonds since 2007. Only $53 billion of sovereign bonds have been issued with a green label, and all non-EU issuance (16% of the total) was by countries that do not issue a reserve currency and thus are not used as safe assets. The availability of an EU green safe asset could help investors, as well as policymakers, achieve their goals to "green" their portfolios and the economy, respectively.

At present, one of the main hurdles to steering capital toward more sustainable investments is the limited size of the green bond market. It constitutes only 3.7% of total global bond issuance, making it difficult for central banks or regulators to ask market participants to build green portfolios.

A green bond issuance of €225 billion would represent an increase of around 89% of the global green bond market size (in terms of 2019 total issuance). It would provide the European Central Bank, as well as other central banks holding large foreign exchange reserves in euro, with investment-grade gre......................

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