Germany to emit green “twin bond” in bid to jolt sustainable finance market

The German government will soon launch so-called green "twin bonds" with a volume of about eleven billion euros in 2020 in an attempt to lure investors into the sustainable finance market and raise funds for emissions reduction projects. Germany's finance ministry (BMF) and environment ministry (BMU) told journalists at press conference that the twin bond concept will allow investors to swap green bonds purchased under the new programme that is due to start in September with conventional German government bonds that are launched in parallel with a similar volume. The concept aims to make the still marginalised green bond market more attractive by allowing especially larger institutional investors to switch to the conventional market if deemed necessary for liquidity purposes. Given that green bonds still account for only a fraction of less than five percent of the global bond markets, large investors seeking to swap assets within the market could run into a wall, as volumes traded are too small to allow for major asset shifts. Opening a door for investors to migrate between markets could therefore ease reservations to enter the green bond market in the first place.

"The goal is to introduce a new group of bonds while simultaneously maintaining the liquidity of our conventional bonds. This ensures that the cost effectiveness of German bond issuances is preserved," BMF state secretary Jörg Kukies said. He argued that the novel twin bond concept would neatly fit into Germany's ambition to become a leading green finance location by bolstering the market for green bonds and creating transparency in terms of investor behaviour. "We hope that the transparency we display will encourage other market actors to emulate it," Kukies said. The state secretary said the funds generated with the new concept would feed into five climate action categories, namely transport, international cooperation, research, industry and agriculture. The volume of the bonds with a maturity of ten years had been gauged by reviewing expenses in relevant federal ministries that are associated with green activities. An impact reporting of the bond's effectiveness would be forthcoming within the next three years, Kukies added.

Rita Schwarzelühr-Sutter, state secretary in the environment ministry, said Germany would have to carry out "significant" investments in infrastructure and research in the next years to comply with its emissions reduction pledges. "The finance industry's role in this regard is very important, for it can set the course and steer funds into sustainable investments" and "take advantage of the economic opportunities created by ecologic necessities”.

Germany has long been seen as a latecomer in green finance but has intensified its efforts to bring its market share up to scale in recent years. An advisory council has been launched in 2019 to assist the government in streamlining its activities with EU regulation and better exploit the potential of a budding green finance market that is still small in size but growing rapidly.