Green Finance in the Covid Era

Collective awakening is needed!
The opportunities that Corona brings are obvious - especially in the much-discussed environmental benefits. Not just this, but it also is related to the consciousness level, this “pandemic” is doing something to our society and we are being called to start questioning – in many different aspects. This situation has such disruptive effects that collective awakening is on the agenda and with it, the topic of ESG; therefore it looks like COVID-19 will in some way lead to a realignment

– away from a sole focus on green finance, towards a broader ESG approach - in which the "E" may no longer dominate and is now accompanied by a stronger focus on the "S".

Pandemic increases ESG prevalence
Conversely, while green bond issuance has declined since the virus hype, it has accelerated sustainability- and social bond-issuance as private markets tap in to support the recovery.
In April, the International Financial Corporation, a member of the World Bank Group, released a report showing that the green bond market had a record global issuance of $ 240 billion in 2019 (3% of total global bonds issued last year). Sustainalytics has reported that green bonds have stalled, as emissions in March 2020 were only a third of the previous year, and the data from the climate bonds Initiative can confirm this, but these were only snapshots and there is no doubt that green bonds are on the rise together with social bonds and that the pandemic is fueling this overall.

First German green bond
The first German green bond is to be issued in September. The federal government has identified expenditures of 12.7 billion euros from five subject areas that are eligible for refinancing through eco-bonds. The money will be used to finance sustainable investments, such as clean transport systems, cars with lower CO2 emissions and the transition to an economy largely based on renewable energies.

In Austria there are currently no specific plans. Nevertheless, the Austrian Federal Finance Agency is considering this option as part of the development of the Austrian Green Finance Agenda. Alfred Lejsek, Head of the Financial Markets Group at the Ministry, said in January at the “Sustainable Finance Summit” that if everything went well, the first “green bond” for Austria could be issued in autumn of this year, but he took the statement back a few days later, pointing out that there was still no schedule for implementation.

The social- / COVID-phenomenon
Governments and development banks around the world are launching issues-specific COVID bonds to raise funds to meet the challenges the pandemic poses to society. The Institute of International Finance recently reported more than 7 billion USD in social bond issuances monthly, compared to the monthly average of $1.2 billion in 2018/19.
The UN Environment Program "Impact of the COVID-19 Pandemic on Global Sustainable Financing" report speaks about the interest in "ESG-Alpha" in light of the increasing focus on social issues. It is noted, however, that it is too early to assess the long-term impact, but that there is potential for a major re-evaluation of “social issues in ESG ratings”.

This addresses of course the current problem with ESG ratings, where there is a lack of standardization in measurements and ratings - the report also adds that this "may" encourage efforts to strengthen the coherence of ESG rating information. This is to be hoped for, but certainly not an easy task.

Original article in German: GeldMagazin_01.September2020