Green Grows the European Bond Market
By Sunny Lewis
PARIS, France, July 11, 2019 (Maximpact.com News) – To raise at least €1 billion for the development of green debt in Europe, French asset management giant Amundi and the European Investment Bank (EIB) have launched the Green Credit Continuum program.
The partners said their goal is to ensure better access for European companies and green projects to market financing to speed up their transition to a low-carbon energy system.
They expect to achieve this goal by boosting supply and demand of green finance through the development of three new segments on the European green bond market, offering attractive yields to institutional investors.
Part of the plan is the creation of a European Green Transaction Network and a scientific committee to establish and disseminate green standards.
With a view to deploying the new financing needed to meet the Paris Agreement targets in the European Union, Amundi and EU green bond pioneer the European Investment Bank (EIB) signed a partnership agreement to launch the Green Credit Continuum investment program.
Founded in 2010, Amundi is now the largest asset manager in Europe and one of the top 10 biggest investment managers in the world.
Amundi CEO Yves Perrier said at the signing event, “We are very honored to sign this partnership with the EIB. It offers a particularly innovative investment solution to institutional investors wishing to help finance the energy transition and diversify their sources of yield in a low interest rate environment. A responsible investment pioneer, Amundi is therefore strengthening its contribution to combating global warming.”
Over the last few years, the European green financing market has mainly developed by way of green bond issues from sovereign, quasi-sovereign and large corporate issuers.
To finance additional efforts to promote European energy and ecological transition goals, new market instruments are required that enable smaller companies and green projects to access market financing and offer higher yields to investors.
The Green Credit Continuum program has as its main goal fostering the development of the green debt market beyond the existing green bonds, thereby supporting small-scale green projects, small and medium-sized enterprises and mid-cap financing.
Green bonds originated with multinational development banks and a drive to source funding for projects that could address the challenges of climate change.
The European Investment Bank brought the first green bond to market in 2007 with AAA-rated investment grade issuance. This was in response to the EU’s Energy
Action Plan and the EIB is now one of the largest issuers of green bonds with circa €10 billion raised to date.
Green bonds remained largely within the sphere of the multinational development banks until 2013. A turning point for the market occurred with sale of a US$1 billion green bond – sold within an hour of issue – by the International Finance Corporation in March 2013 closely followed by the first corporate issuance of green bonds by companies such as French energy company EDF and the Bank of America.
Since then the growth of green bonds has increased rapidly, offering investors an opportunity to fund green projects that meet the Environmental Social and Governance (ESG) factors which more and more investors are applying to their processes.
A year after the formation of a strategic partnership with the International Finance Corporation to develop green finance in emerging countries, Amundi is taking another step towards the funding of the ecological transition and development sustainable finance with the Green Credit Continuum Project (GRECO Project).
Signed at the Paris Europlace 2019 international financial forum on July 9, the agreement between Amundi and the EIB has three components.
First, it covers the creation of a diversified fund that will invest in green high yield corporate bonds, green private debt and green securitized debt.
Second, in parallel, a scientific committee of green finance experts will be formed to define and promote environmental guidelines for these three markets in line with international best practice and legislation derived from the European Commission action plan on financing sustainable growth.
Third, a green deal network called the European Green Transaction Network will be put in place to source deals and projects.
The goal of the agreement is to create several funds based on this model and to help establish market standards for these new green finance segments.
EIB Vice-President Ambroise Fayolle said, “When the EIB issued the world’s first green bond in 2007 as part of its “Climate” bonds program, it made a major contribution to the development of this market. However, despite this fast growth, a significant financing gap persists and huge potential is still waiting to be tapped in some green debt segments.”
“I am happy to be signing this program with Amundi today,” said Fayolle. “It will help promote sustainable finance in Europe by including new issuers in the green finance market, making them even more aware of environmental issues and environmentally friendly investments.”
The partners aim to raise €1 billion within three years, including a €60 million commitment by the European Investment Bank.
To meet its climate commitments under the Paris Agreement and finance the associated energy transition, Europe is missing an estimated €180 billion in financing a year until 2030. To reach this level of investment, the partners say, green finance must mobilize all of the debt capital markets.
The Green Credit Continuum investment strategy targets investments into a range of green credit formats in Europe, with proceeds to be used by the issuing corporate entities to finance climate and environment-oriented investments.
Featured image: EIB Vice-President Ambroise Fayolle explains the Green Credit Continuum program to delegates at the Paris Europlace 2019 international financial forum, July 9, 2019 (Photo courtesy European Investment Bank) Posted for media use.