Italy has tapped the sustainable debt market for the first time by raising a record €8.5bn from green bonds. The lead banks on the deal received orders worth €80bn for the green bonds maturing in 2045.
Despite the high demand, “the price remained fair and within 3bps of the initial guidance, in line with the secondary market curve, which seems particularly reasonable,” said Johann Ple, senior portfolio manager at AXA Investment Managers.
The proceeds from the green bonds, which carry an annual coupon on 1.50%, will fund the country’s green transition strategy. Public spending will be directed to achieve the EU Taxonomy goals, in line with the national Budget Law for 2020. Italy also plans to use the proceeds to support the UN 2030 Sustainable Development Goals.
Bram Bos, lead portfolio manager, green bonds, at NN Investment Partners (NN IP), said: “We believe this is an important milestone for the green bond market as treasury portfolios make large allocations to Italian government bonds.”
According to Italy’s framework for the green bonds issuance, the funds can be deployed in sectors including renewable electricity and heat, energy efficiency, transport, pollution prevention and control and circular economy, protection of the environment and biological diversity, and research.
NN IP said that during a call before the issuance, it was confirmed that around 90% of the bond would be allocated to transport, energy efficiency and protection of the environment and biological diversity.
Isobel Edwards, green bond analyst at NN IP, noted that, however, the “do no significant harm” norm in the EU Taxonomy’s technical criteria is not part of green bond framework pre-issuance.
“We hope that the ’do no significant harm’ criteria will be considered for each activity as laid out in the EU Taxonomy technical criteria for each industry,” she said.
Draghi’s green transition
The new Italian Prime Minister, Mario Draghi, has put an emphasis on the efforts towards the transition to a green economy. The government approved a law to set up a new ministry for the ecological transition to take over responsibilities from the ministry of the environment and ministry of economic development on energy policies.
Germany issued green securities with the same characteristics of existing conventional securities, so-called twin bonds, with the aim to establishing a green yield curve for the sustainable finance market in Europe, unlike Italy.
“The growth of the green bond market keeps on accelerating and the strong increase in issuance from governments gives more investors the chance to greenify their fixed income portfolios,” Bram Bos added.
AXA is certain that sovereigns will drive growth for green bonds in 2021. “This should reinforce the willingness of Spain and others to follow suit,” Ple said.