Germany to issue Green German Federal Securities from 2020
Germany published its first framework for Green German Federal Securities. The aim of these securities is to make Germany’s “green” budget spending transparent while also strengthening the country’s position in the area of sustainable finance.
As a benchmark issuer for the euro area, the German federal government will offer different maturities, establish a green yield curve, and thus create added value for the sustainable finance market in Europe.
The associated green expenditures will serve different purposes. For example, they will promote clean transport systems and reduce carbon emissions from motor vehicles.
They will accelerate the transition towards an economy that largely runs on renewable energies and towards more efficient energy consumption, and they will support research that works towards a more sustainable future. In this way, the German government is also making a significant contribution to international climate action and the conservation of global biodiversity.
Rita Schwarzelühr-Sutter, Parliamentary State Secretary at the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, commented: “With its climate package, the German government has set the course towards huge investment in green and climate-friendly technologies. The finance industry can also contribute to reaching this objective. Green federal bonds create a clear incentive. In this way, we are showing how green and climate-friendly economic activities can be made transparent and predictable.”
Strengthening Germany’s position in the area of sustainable finance
German issuers – especially KfW bank group, formerly state owned but also many other issuers such as local authorities and private companies – have already contributed significantly to the development of an international market for green bonds. By issuing Green German Federal Securities, the German government is taking the next logical step in this evolution.
At a global level, Germany informed that they are fully committed to the Paris Climate Agreement and to the achievement of the United Nations’ 17 Sustainable Development Goals. The German government has been dedicating substantial budget resources to these objectives for years. By issuing Green German Federal Securities and establishing the associated reporting system, Germany is ensuring a high level of transparency on green federal budget spending.
About green spending of about 12.7 billion euros identified. When selecting green budget items, the German government is guided by established international market standards, such as the UN’s Sustainable Development Goals and especially the Green Bond Principles of the International Capital Market Association (ICMA).
The framework published today presents the categories of green spending by the German government. Securities issued are always assigned to expenditures in the preceding budget year. The expenditures of seven ministries were included in 2019. These were reviewed in detail and underwent an external evaluation.
Spending totalling more than 12.7 billion euros was classified as green expenditure according to the framework’s criteria
The sectors for green expenditure include transport, international cooperation, research, innovation and awareness raising, energy and industry and agriculture, forestry and natural landscapes.
What makes them so special? The new Green German Federal Securities will always be issued alongside existing, conventional federal securities, with exactly the same characteristics, for example. the same maturity and coupon. The German government’s aim is to issue green twins for standard maturities on the conventional curve. In this way, the government can offer future investors different maturities and establish a green euro interest rate benchmark, thus creating added value for the sustainable finance market.
The first Green Federal security will be a 10-year Green Federal bond. Its new issue is scheduled for September. It will thus become the green twin of the conventional 10-year Federal bond newly issued on 17 June 2020 (ISIN DE0001102507).
Enhanced value for investors
Holders of German Government securities appreciate the fact that they can trade them in high volumes at any time. The issuer’s credit quality, a reliable market presence and a transparent issuance policy are highly valuable unique features to them. This applies to both conventional and green securities. For the latter, additional transparency on green spending in the federal budget will be created in future. Therefore, according to the joint assessment of the German Federal Government and the Finance Agency, the value of the green Federal securities should in general exceed the value of their conventional twins. From the issuer’s perspective, this warrants at least equal pricing for green Federal securities compared to their conventional twins.
