France has issued its first sovereign green bond, which leading fixed income manager Pimco described as a “milestone” for global investors.
Investors looking at assets focused on ESG (environmental, social and governance) principles should welcome the launch, according to Alec Struc, co-head of Pimco’s ESG initiative.
Green bonds are a form of financing issued by corporations, agencies and sovereigns with the aim of mitigating environmental concerns.
Since the first green bond was issued in 2007 by the European Investment Bank, the size of the green bond universe has reached roughly $250 billion (€232.6 billion), according to research by Pimco and HSBC , and is expected to grow as nations and organisations align their practices with their commitments under the 2015 Paris Climate Agreement.
But can a green bond share the same status as a sovereign bond? According to Struc, they do. He said that France’s green bonds fit into the existing sovereign bond ecosystem. “The new issue is designed to share the same quality rating as its other comparable sovereign issues and to be equally as liquid,” said Struc.
Pimco’s Struc concedes that only 7% of the bond issue’s proceeds are pencilled in for new investments, and the expected €13 billion identified as eligible proceeds in 2017 is small in comparison with other sovereign offerings or with overall French GDP.
However, he added that this number still represents around 5.2% of the outstanding green bond market and is substantially larger than green issues from any corporates.
Struc also said that other sovereigns are likely to follow France’s example, and with it the “ESG evolution looks set to continue”.
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