Case study

Germany issues green €5.25bn twin to its current 10-year conventional bond

27 Apr 2023 . 3 min read

Aiming for GHG neutrality by 2045

Climate protection is a core priority in Germany, one of the first countries to have submitted a long-term low greenhouse gas (GHG) emission development strategy to the United Nations Framework Convention on Climate Change (UNFCCC) – as required under the Paris Agreement.

In 2019, Germany’s government set out a new, more ambitious climate strategy in its Climate Action Programme 2030, with national climate targets given legal status through the “Klimaschutzgesetz“ (Climate Change Act). Following a landmark ruling by the German Constitutional Court, the country decided in 2021 to strengthen the Climate Action Law and to align it with new EU targets – bringing forward and enshrining in law the goal of GHG neutrality by 2045. Germany aims to achieve this target through a transformation of its energy supply towards more renewable energies – planning to generate 80% of Germany’s power by 2030 – and through energy efficiency measures.

The Climate Action Programme also paved the way for Germany’s green federal securities. Germany’s Green Bond Framework – which received a Second Party Opinion from ISS ESG, verifying that the framework follows the ICMA’s Green Bond Principles – supports projects in the following areas: 1. Transport; 2. International cooperation; 3. Research, innovation and awareness raising; 4. Energy and industry; 5. Agriculture, forestry, natural landscapes and biodiversity. The eligible green expenditure contributes to the six environmental objectives of the EU Taxonomy Regulation and at least 12 out of the 17 UN Sustainable Development Goals.

In 2020, the German Ministry of Finance introduced the twin bond concept, whereby green Federal securities are issued with identical coupons and maturity dates to the existing conventional security. The twin bond mechanism provides more transparency to investors, particularly in identifying the green premium potential of Green Bonds.

Green BUND attracts new investors

In April, the Federal Government of Germany mandated NatWest to support the issuance of a new 10-year green federal bond (a green BUND) in the role of Joint Lead Manager.

Both asset managers with strong ESG credentials and traditional Bund investors showed strong support for the orderbook, resulting in a final order volume of €14.8 billion. The transaction, which also attracted new green investors, achieved a measurable ‘greenium’ of 0.5 basis points.

Investors from the UK, Nordics and the Benelux led demand, taking 23%, 22% and 21% respectively of the allocation. The green BUND, which represents the green twin to Germany’s current 10-year benchmark, received broad interest across all investor types, with 44% going to asset managers, 10% to central banks, and 29% to pension funds and insurance accounts.

Germany has now issued half of the targeted 2023 green issuance volume of €15-17 billion, building on yearly growth from €11.5 billion in 2020, to €12.5 billion in 2021 and €14.5 billion in 2022. The country’s outstanding volume of Green Bonds now totals €46.75 billion.

NatWest proud to support European countries on their net zero journeys

Caroline Haas, Head of Climate and ESG Capital Markets at NatWest, commented on the transaction: “We are delighted to have been able to again support the German Ministry of Finance, following our Joint Lead Manager role for a green 5-year syndication last year. The success of this 10 year transaction, which anchors the 6th point on Germany’s green BUND yield curve with tenors of 2, 4, 7, 8, 10 and 27 years, emphasises the importance of green sovereign issuances attracting new green and ESG investors. Tackling climate change is paramount to our business and our diverse customers, and we are proud that we can make a difference by helping European countries reach net zero.”

Disclaimer

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