The European Union wants to lift the GDP of the eurozone economy by 3% by 2027 through borrowing under a new green and social bond program agreed to in September, attendees heard Tuesday during a webinar.
The recovery program, which will launch with a €100 billion ($117.2 billion) SURE bond program, is a "game changer" for investors from United States and Asia because it will help to establish a euro-denominated green and social bond yield curve, Gert Jan Koopman, director-general at the European Commission's directorate general for budget said in a presentation during the webinar, hosted by APG Asset Management, the in-house manager of the €462 billion Stichting Pensioenfonds ABP, Heerlen, Netherlands.
SURE is aimed at mitigating the economic impact of the coronavirus outbreak through financing of businesses in the EU and helping workers who have lost their jobs.
The EU bond issuance, which is expected to amount to a third of the €750 stimulus package unveiled by the EU in response to the pandemic, will include bonds with both short-term maturities and 30-year bonds. Average bonds would have 15-year long maturities, Mr. Koopman said. Italian and Spanish bonds, are expected to each make up about €21 billion of the program, he said.
European investors, which spoke during a separate panel discussion during the webinar, are also keen on the upcoming issuance that is expected to launch in January. "There are sectors that are lacking financing like water or waste (management)," said group Pascal Christory, CIO of AXA Group, by way of example. "We need duration in the portfolio," he added. "We would welcome even longer maturities than 30 years," he said.
Still, investors said the they want to see more details of the EU program before they invest. Geraldine Leegwater, member of trustee board at ABP said that standardization of green bonds is needed to lower the costs of participation for investors and issuers.
Mikkel Svenstrup, CIO of the 918 billion Danish kroner ($144.2 billion) ATP, Hilleroed, Denmark, said the biggest challenge is standardization of definitions of how green and social bond proceeds are invested. Measuring the long-term impact of the proceeds "is getting more difficult as we move in that direction," he said. "We want to have a good dialogue with issuers because we want to influence our (holdings)," he added.
Ms. Leegwater agreed with Mr. Svenstrup that EU social bonds definitions need more development.
The way in which green bond projects are defined are getting stricter, too, she said. "Social bonds can benefit from that experience," she said.
But she added that it is even more difficult to define the social impact of green bonds. "Social bonds should focus on long-term challenges and not just short-term health care issues," she said.
Other speakers agreed that an EU framework for bonds that focuses on long-term social issues is needed. Mr. Christory said investors require that key performance indicators are defined.
Speakers also discussed the role of the European Central Bank in the EU program. ATP's Mr. Svenstrup said the ECB should make its own decision about market participation. "ECB is part of the solution," he said. Ms. Leegwater added that the ECB will participate when the green and social bond market grows. But she questioned if the ECB should use their asset purchase program to target a specific objective. "It might be complicated," she said.
Carsten Brzeski, chief economist eurozone and global head macro at ING Research said during a separate presentation: "There are too few green bonds for them to be eligible for an asset purchase program by the ECB at present."
The ECB is not the main actor in greening of the EU economy, Mr. Brzeski said. "We will see the ECB moving greener to support the transition to the low carbon economy, but ECB would have a back seat because it's all about fiscal policy."
