Reaching Net Zero with Sovereign Green Bonds

On 29 April 2021, Jean-François Pons, Research Fellow at Europe Jacques Delors, participated in a webinar with Q&A on the role sovereign green and other ESG bonds can play in financing the EU’s economic recovery and the transition to net zero organized by the UK Mission to the European Union. The event was also attended by MEP Sven Giegold (Group of the Greens/EFA in the European Parliament) and Sarah Gordon (Chief Executive at Impact Investing Institute). William Macfarlane, Director, Economics and Finance at the UK Mission to the EU, moderated the round table. 

In a paper titled “European Recovery Plan: Time for Green and Social Bonds!” by Jean-François Pons and published by Europe Jacques Delors, Green Bonds are defined as “...debt securities on the financial market whose proceeds are used to finance ‘green’ projects or activities, i.e., in support of the environment, the fight against climate change, biodiversity preservation, the circular economy, etc.”

Green Bond issuers must indicate this ‘earmarking’ prior to issue and publish a follow-up of the projects and activities financed in order to ensure that they have met their targets. 

In this regard, Jean-François Pons pointed out during his speech that “there are a lot of possible actions and ambitions to reach the goal of net zero emissions. Green Bonds are only a tool, though very useful, to be developed. I think the developments we are looking at are very positive for the sustainable transition.”

On May 27, the European Commission proposed a €750 billion plan to boost the EU economy and support countries most affected by the pandemic. This €750 billion would be borrowed on the financial market. “Green Bonds are an instrument to force governments into providing transparency. I hope that the implementation of the recovery plan will be transparent to ensure the realization of green investments promised by governments.”

In his publication, Jean-François Pons pointed out that the “Green Bond market requires issuers to be highly transparent prior to issue, as well as during the project’s implementation, which includes project monitoring for the duration of the loan. Issuing on this market will therefore require the Commission to be highly transparent on the green portion of its recovery plan, which will be part of the green deal, and will therefore help to ensure its realization.”