Germany: Deutsche Börse becomes Climate Bonds Partner: German GB Market Update: Frankfurt Declaration.
Three stories from Germany last week, all in Frankfurt, all green, all good.
A new Partner in Deutsche Börse, a new report into the German green bond market and a new sustainable investment commitment marked a big week in Frankfurt.
Our new partner
One of the world’s leading stock exchanges, Germany’s Deutsche Börse Group (Deutsche Börse) is the latest global financial organisation to join the Climate Bonds Partner Program.
The announcement was made in Frankfurt last week at the Deutsche Börse hosted Sustainable Finance Initiative which also saw the launch of the Frankfurt Declaration and the public release of the German Green Bonds Market May 2017 report, a collaborative effort between Climate Bonds and Deutsche Börse.
Who’s saying what?
Kristina Jeromin, Head of Group Sustainability at Deutsche Börse:
“Deutsche Börse is delighted to become a Partner of the Climate Bonds Initiative. Supporting organisations taking the lead in developing market based and finance driven responses to create sustainable financial markets is one of our core responsibilities.”
Sean Kidney, CEO Climate Bonds Initiative:
"Deutsche Börse occupies a pivotal position in Eurozone capital markets. Through this partnership we have an opportunity to promote increased collaboration among green bond market participants to improve market liquidity, integrity and investor access.”
“We will be working cooperatively on standards, harmonisation and developing secondary markets - all critical ingredients to robust market growth.”
Wilkommen!
Frankfurt release of Climate Bonds Germany Green Bond Market update
The Climate Bonds Initiative in collaboration with Deutsche Börse has released a new paper analysing the growing German green bond market, progress to date & options for development.
“We are very pleased to present Germany Green Bond Market May 2017 - a study, which gives a snapshot on the current dynamics of the German Green Bond market,“ Kristina Jeromin, Head of Group Sustainability at Deutsche Börse said in launching the report.
What’s the latest?
Germany is the 4th largest country globally for green bonds outstanding, and the 2nd largest in Europe, after France.
Despite its large size, the domestic market is concentrated in only 8 issuers, of which only two are corporations. To date, 80% of issuance comes from the banking sector.
Renewable energy projects have been the destination of 87% of the total proceeds raised by German green bond issuers.
5 Action Points for German issuers and investors:
1. Sovereign and sub-sovereigns: issue demonstration green bonds
2. Investors: signal demand for corporate and asset-backed issuance
3. Corporates and banking sector: join the market and facilitate deal flow
4. Policy-makers: promote standards and green regulatory reform
5. Central banks: send strong signals of support to build confidence among issuers and investors
The full report can be downloaded here.
Greening the market:
With a large vanilla bond market, a strong policy backdrop, and a wide base of banks and potential issuers, Germany has a huge potential for green financial growth.
German investors can lead nationally and in EU markets in many ways: on debt instrument deployment, on growing the green covered bond market and on providing essential market infrastructure and services.
New instruments are essential as a proof of concept for other issuers and can broaden access to the market.
To date, Germany has issued 4 different debt instruments, a notable achievement in product development considering that its green bond market at present only counts eight issuers.
(A ninth issue is in the pipeline).
Green Pfandbrief, covered bonds and green ABS all have healthy growth prospects.
Scaling up the usage of all green debt products and increasing involvement of the German financial sector in green finance is as underlying theme of the market update recommendations.
As an example, green ABS annual issuance in Europe alone could reach USD 84bn by 2035 (37% of green securities) according the latest OECD figures.
The 2035 global market size ranges from USD28—380bn with investments for low carbon public transport, adaptation, land-use and waste adding to the numbers.
Ensuring the public policy settings are right could also help accelerate the growth of EU green securitisation markets, support the 2030 climate and energy targets and build additional climate finance capability.
Sustainable Finance and the ‘Frankfurt Declaration’
The Deutsche Börse hosted Sustainable Finance Initiative was the also the backdrop for the investor driven Frankfurt Declaration, another signal that developing centres of green finance and trading is not being left to London or Luxembourg.
Frankfurt hosts the headquarters of the ECB and has both the political support and financial infrastructure to become a green finance hub.
The explicit acknowledgement in the Frankfurt Declaration of the Sustainable Development Goals (SDG) and the Principles for Responsible Investment (PRI) is a positive, as is the recognition that finance sectors must be a major driver of sustainable development.
The Climate Bonds Initiative is a Signatory to the Declaration.
We believe that developing green finance capacity across major financial centres, in both developed and emerging economies is vital to generating the private sector investment needed to meet global emissions targets and hold warming at or around 2 degrees.
Reaching $1tn in green bonds by 2020 should be an integral part of the associated investment goals in actioning climate finance policy and various investor commitments.
The Last Word
As G20 President, Germany has taken up the Chinese mantle on green finance at the G20 and more recently on climate action at G7 level .
Germany is a strong supporter of the Paris goals and the G20 Green Finance Study Group (GFSG) recommendations from its November 2016 Synthesis Report.
Deutsche Börse’s actions in supporting green finance complement Germany’s positions and set an example for other stock exchanges.
Overall, a good week in Frankfurt.
Till next time,
Climate Bonds
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