Thursday's discussion on green finance at COP is the backdrop to our overview of the overarching climate commitments of a major EU & G7 nation
What’s it all about?
While national delegates were immersed in discussions that will shape the COP23’s outcome, the Sustainable Stock Exchange’s (SSE) “Green Finance Dialogue” event brought together senior leaders and global green finance experts to look at the role stock exchanges can play in greening capital markets and promoting green financial products.
The morning forum featured Isabelle Durant, Deputy SG UNCTAD, Robert Scharfe, CEO of Luxemburg Stock Exchange, Lui Shaotong, Executive Vice President of Shanghai Stock Exchange, Jean-Luc Gravel, Executive Vice President of Caisse de dépôt et placement du Québec and Fiona Reynolds, Chief and responsible investment advocate at PRI.
Climate Bonds’ Director of Investor Outreach Manuel Adamini joined an afternoon panel along with Strasser Capital and MEP*, originators of an innovative series of Climate Bonds Certified green loans for solar energy and recognised at the 2017 Green Bond Pioneer Awards for their efforts to expand the role of green finance across German and EU markets. Representatives from other organisations, including the NN IP* and the Luxemburg Stock Exchange*, also participated to the panel discussions.
Germany’s innovative green finance market
At present, Germany holds EU leadership in innovative debt instruments. To date domestic issuers have brought welcome diversity into markets through the issuance of senior unsecured transactions, Schuldschein or private placement equivalent (Nordex), Pfandbrief or covered bonds (Berlin Hyp*) and green loans (MEP and Strasser Capital*).
Designing and launching new investable green products into the market attracts institutional capital, helps build depth and secondary markets, and it also encourages other originators to follow with their own green offerings. With Frankfurt seeking to become a European green finance hub, it is essential for Germany to continue to cement its strengths in developing and marketing various green debt instruments .
Deutsche Hypo has a green Pfandbrief of around EUR500m in the pipeline expected to be closed in the following months, which will bring Germany’s total green covered bonds to two.
Past & present climate efforts
Germany has the largest population and strongest economy among the EU member states (including the UK). As such, its contributions to climate action are critical and the country has presented its ambitious short and long term climate change targets in their Climate Action Plan 2050.
Germany has significantly increased its contributions to climate finance during 2016, and has provided invaluable support to COP23 President Nation Fiji in 2017.
The country has set a target of EUR4bn in climate funding by 2020, also stating efforts in mobilising additional financing through public loans and private funds.
Efforts to scale up renewable energy have also been significant (despite concerns over aspects of its energy production from coal based generators), setting a new record this summer when 85% of total energy came from low-carbon technologies.
Is this enough?
Despite the climate action implemented to date, Germany is already set to miss its 2020 goal of reducing emissions by 40%, if a more stringent climate agenda is not pursued. For instance, although renewables account for around 30% of the power mix, achieving further emission reductions will be possible only if combined with the phase-out of coal power plants.
In the European green bond market, Germany ranks second for issuance volume, totalling around USD23bn (including other green finance instruments) to date. However, there are only 10 German issuers, the majority of which is made up of development, state-owned and commercial banks.
Amongst the development bank issuers, KfW is worth citing as best practice example of the scale required to accomplish a significant market growth. KfW’s inaugural EUR1.5bn issuance in 2014 had a significant impact, marking the biggest issuance of the time. The bank now accounts for 60% of German green bond total volume and is among the 10 largest issuers worldwide to date.
On the investor side, Deutsche Kreditbank (DKB) – one of Germany’s largest banks and a green bond issuer since 2016 – has just decided to start actively investing in green bonds and estimates the portfolio to build up to EUR200m.
The Last Word
Given the ambition of the country’s climate policies, the current insufficient level of climate action and the country’s economic and financial strength, Germany is in the right position to expand its green bond and green securities markets. There is some pressure on the government to move faster in this policy area.
However, to successfully do so, issuer’s diversity needs to increase in parallel to instruments and, as more distinct players enter the market, Germany can become Europe’s lead issuer.
Thursday’s side event in Bonn was held against this backdrop, with the successful example of the Luxembourg Green Exchange, one that other bourses may ponder, and MEP / Strasser Capital, another best practice example, gaining recent recognition by FOCUS magazine in part due to their growth trajectory as a result of their use of green bond financing.
In the meantime, as COP23 comes to an end, well done to Germany for taking a positive international role on climate and being a great host to all nations’ participants!
‘Till next time,
P.S. Produced in partnership with Strasser Capital/MEP, which contributed to the German version of this blog.
*Disclosure: Several organisations named in this communication are Climate Bonds Partners. A full list of Partners can be found here.
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