EU Makes a Green Splash

    Stockholm (NordSIP) – On November 14th, the EU took over the green bond market issuing €3 billion of 25-year green bonds, as a part of its €250 billion NextGenerationEU Green Bond issuance programme. The bonds were issued in parallel with a standard, non-green labelled, €5 billion bond from the European Commission.

    NextGenerationEU Green Bond

    Under the NextGenerationEU green bond framework, the funds from these transactions will be used for nine broad categories of expenditure, including energy efficiency, clean energy and climate change adaptation. Investments are identified based on the 37% climate expenditure of the spending roadmaps under the Recovery and Resilience Facility created during the COVID-19 pandemic, which is at the heart of the NextGenerationEU programme.

    The bonds are subject to both allocation and impact reporting. According to the 2022 allocation report, Member States had allocated €13.5 billion of green bond proceeds to eligible expenditures. “Most of the expenditures are incurred in the investment categories clean energy and transport (55.6%) and energy efficiency (33.4%). In absolute numbers, the highest amount of proceeds has been allocated to green expenditures in Italy (50.7%), followed by France (37.5%) and Greece (8.3%). In total, seven Member States have reported expenditures and have thus used NGEU green bonds for funding,” the report states.

    Progress on the allocation of proceeds from NextGenerationEU Green Bonds can also be tracked on an ongoing basis through the NextGenerationEU Green Bond Dashboard. Of a total €190 billion in eligible funds for financing through green bonds, €47 billion have been issued in NextGenerationEU green bonds, which have facilitated €21 billion in NextGenerationEU green bonds expenditure, according to the Dashboard, as of the end of the third week of November 2023.

    Transaction Details

    The bonds pay a 2.625% coupon and were priced a 72bps over mid-swaps, providing a 3.76% re-offer yield. Interest for this transaction cannot be overestimated with the demand exceeding supply by 23.7 times according to the transaction details. The joint lead managers of this transaction were Barclays, BNP, LBBW, Morgan Stanley and Nordea.

    Nordic investors represented the fourth largest investor group, purchasing 13% of the securities, behind France (17%), the UK (16%) and the Benelux (14%). The remaining investors came from Germany (9%), Portugal & Spain (9%), Italy (9%( and other miscellaneous European countries (13%). Sectorally, bank treasuries (33%), fund managers (26%) and insurance companies & pension funds (22%) were dominant. Central banks & official institutions (10%), banks (6%) and hedge funds (3%) purchased the rest.

    This transaction is the EU’s last syndicated transaction for this year, bringing total issuance volume in the second half of 2023 to €34.2 billion. The Commission has announced it will finalise its bond issuances for this year with an up to €4bn auction on 27 November.

    Image courtesy of EU/Christophe Licoppe
    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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