The European Commission unveiled its first legislative proposals aimed at gearing the EU financial system to tackle climate change yesterday (Thursday), including steps to establish a “groundbreaking” green taxonomy that could form the basis for an EU green bond label.
Banks assessing climate risks and opportunities in line with TCFD recommendations must look long term, make use of comprehensive scenario analyses, and adapt data collection, according to findings of a UN-convened pilot, which revealed positive impacts such as improved customer engagement.
Landshypotek Bank issued the first green covered bond from Sweden on Wednesday, a SEK5.25bn (EUR510m) five year issue that is the largest Swedish krona green bond to date and which achieved pricing at a sizeable “greenium”, exceeding the issuer’s expectations.
The European energy efficient mortgages initiative – comprising EeMAP and EeDaPP – aims to bring together lenders, builders, utilities and others to create a standardised product to benefit 500 million EU citizens and the planet. Luca Bertalot, secretary general of the EMF-ECBC, which is leading the project, spoke to Sustainabonds ahead of the launch of a pilot phase in June.
An SRI portfolio manager warned issuers who are slow to take up green bonds that their credentials may be questioned, at CBI18 last Tuesday, although investors said they acknowledge there is no such thing as the perfect green bond, and one said he would commit to buy non-green issuance from other parts of green bond issuers’ capital structure.
A member of the sustainable finance HLEG has warned that a European Commission proposal to include green commitments in bond prospectuses and make them legally binding risks raising costs and deterring issuance unless other requirements are eased or incentives provided.
Issuers are being encouraged to pledge to establish green bond strategies under an initiative unveiled at the CBI18 conference on Tuesday to help hit a $1 trillion target by 2020, as participants noted that “a lot of heavy lifting” is needed even if big growth is forecast for this year.
Green Loan Principles that will provide the first sustainability framework for the syndicated loan market were launched on Wednesday by the LMA and the APLMA, complementing the Green Bond Principles to support a market that could boost climate-related funding.
After pioneering issuers have led the way in creating a green bond market, the full array of debt instruments needs to be tapped to fund the fight against climate change, says the Climate Bonds Initiative’s Manuel Adamini. The recent growth of sovereign, structured and even synthetic deals suggests this is on the verge of happening.
The use of renewable energy assets as covered bond collateral under a proposed Luxembourg framework would bring extra risks versus traditional collateral, according to Moody’s, but the rating agency highlights various mitigants and says the law is overall credit positive for funding such assets.