By Beate Sonerud, Climate Bonds policy analyst
The Green Paper launched by the European Commission earlier this year recognized the potential role the Capital Markets Union could play in harmonising definitions and standards for green bonds. While it was great to see green bonds on the formal agenda, supporting standards is only one of a myriad of ways that green bonds fit squarely with the Capital Markets Union agenda.
"Is any action by the EU needed to facilitate the development of standardised, transparent and accountable ESG (Environment, Social and Governance) investment, including green bonds, other than supporting the development of guidelines by the market?"
In our response (available in full here) we argue that most of the other priority areas proposed by the European Commission for the Capital Markets Union are in fact also highly relevant for facilitating the development of the green bonds market. And vice versa - green bonds can help advance the other priorities of the Capital Markets Union as well. Win-win for the policymakers!
Here’s a quick glance at the 8 ways to make the Capital Markets Union work for green bonds:
- Widening the investor base for small-to-medium enterprises (SMEs) can be done through green bond issuance, as green bonds offer investor diversification by tapping into Socially Responsible Investors. Tools available to help SMEs issue green bonds include growing a market for green securitisation, green private placement and extending public credit enhancement to green bond issuances from SMEs.
- Support for ‘high-level securitisation’ should place a particular emphasis on green securitisation, i.e. securitisation of small-scale low-carbon assets such as mortgages to green buildings, solar and wind assets or loans to these projects. European policymakers and public sector entities can kick-start a green securitisation market by encouraging increased lending to green loans, supporting standardization of loan contracts for relevant green assets, selective credit enhancement and supporting financial warehousing.
- Boosting long-term investment for infrastructure should prioritise green. For example, the European Fund for Strategic Investments can be used to credit enhance green bonds financing low-carbon and climate resilient infrastructure.
- Development of a European Private Placement Markets should consider how to make it suitable for green bond issuance. Private placement is especially suitable for issuers struggling to have a sufficiently large green asset base to enter the public bond markets.
- The proposed program to improve access to finance for infrastructure should prioritise green infrastructure
- When addressing information problems with infrastructure investment pipelines, set up a specific pipeline for low-carbon and climate-resilient infrastructure investments.
- Include green covered bonds when developing an integrated European covered bond market.
- Support the development of green bond guidelines and standards, including the international Climate Bonds Standard and Certification scheme, currently the only industry effort to develop standards for what qualifies as green in the green bond market.
This Green Bond Capital Markets Union agenda is part of a wider agenda to shift private capital to climate friendly investments in the EU. Have a look here at an even more extensive action plan for how European policymakers can contribute to this shift, developed for our project to the European Commission.
Join us in Brussels on July 9 PM to find out more! RSVP at firstname.lastname@example.org