Germany plans €12bn green govvie that could help put a price on ‘green’ for the first time

‘Twin bond’ approach would also offer liquidity to investors

Germany has confirmed it will launch a €12bn sovereign green bond using an innovative “twin bonds” approach that will offer investors better liquidity and could help put a price on ‘green’ for the first time. 

Dr Jörg Kukies, State Secretary at Germany’s Federal Ministry of Finance said the government will issue green bonds every year. Each transaction will be ‘twinned’ with  a conventional bond with an identical maturity and coupon, allowing investors to switch easily to the conventional market if needed for liquidity purposes, reflecting the reality that the green bond market is often too small to allow big trades. 

Kukies said the plans were part of Germany’s ambitions to become a leading green finance hub by bolstering the green bond market.

“The goal is to introduce a new group of bonds while simultaneously maintaining the liquidity of our conventional bonds. This ensures that the cost effectiveness of German bond issuances is preserved,” he told a press conference. 

The German Government also hopes the approach will help it establish a “green euro interest rate benchmark” – the first of its kind in the world.  

“Bar US Treasuries, the bund is the most important benchmark in Europe, and to make that green is going to establish a whole green curve as a benchmark,” said Manuel Adamini, Director of Investor Outreach and Programmes at the Climate Bonds Initiative. “It won’t be one or two issues. Over time, the German government has made it very clear that they want all main maturities to be green.”

Crucially, Adamini said the creation of a green curve with multiple issues could help answer the long-posed question of whether there is a ‘greenium’ – whether investors pay a premium for green bonds compared with conventional bonds. It would allow the costs attached to the green component of a bond to be isolated by comparing it with an identical, non-green bond. It would also allow comparison of like-for-like green bonds, he added.  

Germany will use proceeds from its green bond issuances for a range of activities, including clean transport systems and renewable energy. It has a second party opinion from ISS-ESG.