The European Commission has a unique opportunity to issue green bonds to finance the EU’s coronavirus recovery plan and ensure overall investment coherence with the Green Deal, write Pascal Canfin and Bas Eickhout.
Pascal Canfin is the chairman of the European Parliament’s environment committee and a leading French MEP from the centrist Renew Europe political group. Bas Eickhout is a Green MEP from the Netherlands and vice-chair of the Parliament’s environment committee.
The European Council of 17-21 July reached an unprecedented agreement. To cope with the economic outfall of the COVID-19 crisis, the Commission will be authorised to borrow funds on behalf of the EU on the capital markets up to €750 billion to finance Next Generation EU. The European Council has also agreed to an overall climate target of 30% for the Multi-annual Financial Framework to be reflected in Next Generation EU. In reaction the, Parliament is calling for a legally binding climate-related spending target of 30% and a biodiversity-related spending target of 10%.
The legislative process has now started for both co-legislators to agree on the precise rules for the spending of the different Next Generation EU programmes including the Recovery and Resilience facility. Taking into account the above, at least, €250 billion will be dedicated to green investments in the Recovery and Resilience Facility.
The European Commission has therefore a unique opportunity to issue green bonds to finance the green part of the Facility to ensure the overall investment coherence with the Green Deal and provide additional safeguards and transparency. Green requirements in the Recovery and Resilience Facility supported by the issuance of green bonds will go hand in hand with the needed flexibility for Member States to design their recovery plan with a high short-term macroeconomic impact.
We therefore call on Ursula von der Leyen, as President of the European Commission, to seize the opportunity to announce soon that the commission will issue a first trench of €100 billion of Greens bonds in 2021 – in line with Green Bonds Principles. The President would enable the Commission to become, by far, the largest green bonds issuer worldwide and would strengthen the role of the Union as a global trendsetter for green finance
By doing so, the Commission will consolidate the green share of the Recovery and Resilience Facility as it will become a contractual commitment with investors. In addition, it will support the development of a flourishing green bond market and provide opportunities for investors to increase the sustainability of their portfolios.
There is currently an immense appetite for Green Bonds on the market. Potential investors have literally no concerns that the market could absorb such a volume of Green bonds. On the contrary, the market is looking for institutional issuance of green bonds. They queued to invest in the recent green bonds issuance in Germany. It was, in the end, oversubscribed 5 times. The European Commission would therefore set an example to other issuers, similar to the European Investment Bank and member states that have issued green bonds over the past years.
Conversely, if the Commission would miss the opportunity to issue green bonds, it would weaken its legitimacy to be recognised a green finance leader. It would also be very difficult for the Commission to call on others to use the EU’s upcoming Green Bonds Standard, when itself did not issue green bonds while it had the unique opportunity to do so.
Following the unprecedented agreement reached at the Council over the summer, it is now time for the Commission President to take a bold step towards a Green Recovery. Issuing green bonds to finance the green investments within the Recovery and Resilience Facility, will not only contribute to save and transform our economy and put it in a trajectory aligned with the Paris Agreement but it will ensure the recovery overall investment is in line with the European Green Deal (EGD) as the EU’s new growth strategy.
Green finance offers solutions to accelerate the transformation into a de-carbonised, circular and environmentally sustainable European economy and society that is essential for our future and to make Europe the first climate neutral continent of the world. It must be the blue print for the recovery.