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Governments to drive supply of green bonds in H2 2020

20 Aug 2020

Green bond issuance is expected to pick up in the second half of the year largely driven by sovereign issuers.

Bram Bos, lead portfolio manager, green bonds, at NN Investment Partners, said that volatility took a lot of supply out of the market in the first half. “So far this year, issuance has been lower than we expected. Issuers are postponing them into the second half of the year.

“One sector where we expect a lot of issuance from in the second half are governments,” he added. “We spoke to several governments after the Coronavirus crisis in March and they have committed to start issuing green bonds in the second half of this year.”

Bos added that although fresh bonds will be issued in the final months of the year, growth is going to be lower in 2020 than the firm initially projected.

Tapping the green bond market has its benefits for governments. In the UK, for example, developing the onshore renewable energy infrastructure could boost the economy by £29bn in the next 15 years, Thrive Renewables, an investor, believes.

Such an investment could also create 45,000 jobs and help the UK meet its target to be net-carbon neutral by 2050.

To achieve this target renewable assets that generate 5.5GW of energy needs to be created each year. This is three times greater than the capacity created in 2019.

This is a good problem to have. The government needs and huge economic boost and to create new jobs, which it can achieve through meeting its environmental targets. It just has to borrow even more money to do it at a time when the national debt exceeded GDP for the first time since the 1960s.

Wind is cheaper than gas. Generating energy from onshore wind turbines is 12.5% less expensive than burning gas, Thrive says, predicting that the cost of onshore wind will continue to decline.

The problem is that the UK government has not issued a green bond before, but, with the cost of meeting its environmental targets put at £1trn over 30 years, the argument from raising capital to invest in environmental projects is strong.

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