William John Market Report 13-10-21
William John takes a look at the European Union’s issuance of green bonds - the largest to date in financial history.
William John, Capital Bonds, Green Bonds, ESG, Climate Change, Global Warming, Renewable Energy, Financial Securities

William John Market Report 13-10-21

William John Market Report 13-10-21

Category: Reports

This week, the European Union issued the largest value of “green bonds” in financial history. The bloc raised its target €12 billion and attracted over €135 billion worth of orders for the bonds – signalling strong investor demand for the security in a period where fund managers and investors are focused on Environmental, Social, and good Governance (ESG) investing.

Tuesday’s issuance of the bonds is the first batch of bonds to be issued out of a total package worth €250 billion out of the total €800 billion of the European Union’s COVID-19 recovery fund. The proceeds from the bonds will be divided up amongst member states by the European Commission. The commission will ensure that the member spend at least 36% of their national recovery funds on green investment under European Union sustainable finance rules known as the EU Taxonomy.

The EU Taxonomy “is a classification system, establishing a list of environmentally friendly activities” according to the Commission’s website. It aims to ensure member states invest environmentally to achieve the following objectives: climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

Some issues remain on the protocol and legislation, such as whether to include nuclear energy as “sustainable” given its toxic waste biproducts. However, the initiative will not only accelerate the recovery of states ravaged by the pandemic that aren’t France or Germany, but it will provide the capital needed for these states to invest in what is typically more expensive technology than the cheaper coal or gas alternatives in many member states depending on how accommodating their geographies are for renewable energy technologies. According to the UN Environment Programme, though, the majority of popular renewable energy sources are becoming much, much more cost efficient compared to their fossil fuel counterparts. Looking at their levelized cost of electricity (LCOE) which looks at the net present value of the cost of electricity generation for a power plant over its lifetime for different renewables between 2010 and 2018:

Source: William John Analytics, UN Environment Programme, Statista

Whilst the launch of the European Unions “green bonds” marks potentially the first tangible step towards a net-zero carbon continent, following in the footsteps of the UK with the Treasury’s launch of similar “green gilts” in September that raised over £10 billion on £90 billion worth of orders. The West will undoubtedly continue its historical rounds of capital raising over the coming years as it reduces its fossil fuel usage. What remains to be seen is how quickly environmental projects are completed, and what new technologies or economies of scaled usage arise from increasing investment in the “green sector”. Nevertheless, it is a landmark step towards a sustainable future. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.