The German government has published the framework for forthcoming green bonds from the sovereign, identifying real and intangible assets as eligible targets of expenditure to which proceeds are allocated. 

According to a report issued by the finance agency on Monday, the spending associated with the green bonds will be in five main sectors: transport; international cooperation; research, innovation and awareness-raising; energy and industry; and agriculture, forestry and natural landscapes. 

Examples of eligible expenditures include grants for maintenance or development of rail infrastructure for freight and passenger transportation, financing electric mobility and recycling of materials, especially batteries, according to the agency’s framework.

Expenditure on armaments, defence, tobacco, alcohol, gambling, and any activity that is principally based on, or related to, fossil fuels, including coal, or nuclear energy, is excluded, the report stated.

Germany also plans to assist emerging markets and developing countries in their efforts to transition towards a more environmentally-friendly economy.

“I would like to see a green master plan from the federal government and a clear analysis of what kind of transformation we need in which sectors,” said Silke Stremlau, member of the management board at pension provider Hannoversche Kassen.

She believes that agriculture, food and the entire consumer industry would need to be taken into account for sustainable investments alongside transport, mobility and energy.

Under the government’s green bond framework, securities issued will always be assigned to expenditures in the preceding budget year. More than €12.7bn has been classified as green expenditure in the 2019 budget according to the framework criteria.

Final associated expenditures will be presented in allocation reports, the first of which is due to be published next year. Reporting on the impact of green expenditures is also foreseen.

“Our innovative ‘twin bond’ approach is designed to act as a catalyst, channelling more investments into a greener economy”

Jörg Kukies, state secretary at the federal ministry of finance

Jörg Kukies, state secretary at the federal ministry of finance, said: “From now on, the German government will issue green federal bonds every year.

“Our innovative ‘twin bond’ approach is designed to attract new investors and issuers to the green bond market and thus act as a catalyst, channelling more investments into a greener economy.”

The government will issue ‘twin bonds’, green bonds and conventional bonds, with a 10-year maturity and an identical coupon of 0%.

It expects to issue between €8bn-12bn in green federal bonds this year. The first issue is planned for September, as the twin of a 10-year bond sold in June.

Although green bonds will always be issued as a counterpart to a conventional security, the finance agency has said the issuance volumes will be different, with conventional bonds being placed at a significantly larger volume than the green twin.  

Future plans

Germany plans to radically change its energy system from nuclear and fossil fuels towards renewable energy sources. It has set a goal to reach 80-95% reduction in greenhouse gas emissions by 2050 compared with 1990 levels. 

It has committed to phase out coal-fired power generation by 2038 at the latest, at the same time expanding the share of renewable energies in gross electricity consumption to 65% by 2030.

It has said it would  provide investors with transparent reporting on the allocation of proceeds and their impact through reports for each green sector.

Stremlau said Germany will reinforce its position internationally as a location for sustainable finance, with a green investment programme paired with financial solidity.

Green bonds will most likely find buyers, she added, but for Hannoversche Kassen a 0% coupon is “absolutely unattractive” and it will not purchase the green bonds.

“I understand that the government issues a 0% coupon due to the [current] market situation, but I would like something different for the future,” she said.

The German government has said it plans to establish a green yield curve for the euro area, with the same maturities as on the conventional curve.

“Market participants with different investment horizons will have at their disposal a green, transparent investment opportunity with first-class credit quality,” it said. 

To read the digital edition of IPE’s latest magazine click here.