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HSBC’s UK & Europe CEO calls for “better incentives” for green bonds as EU ponders tax breaks

Simoes argues green financing is more expensive for the issuer

Antonio Simoes, chief executive of HSBC Bank Plc with responsibility for the UK and Continental Europe, has called for “policy support” to boost the corporate green bond market days after the European Commission held a meeting to discuss tax incentives.

Speaking at an event hosted by The City of London on business and the climate, Simoes told the audience that “better incentives” were needed for issuers to come to market with labelled green bonds as opposed to plain vanilla notes.

“When I have discussions with our clients, the reality is that – at the moment – green financing is more expensive for the issuer than conventional finance…. There are additional costs of compliance on the company side when they issue a green bond. It undermines the economic rationale: they should at least be priced the same way.”

He said the green bond market would continue to grow, “but in order for us to get from niche to mainstream, it will need policy support”. He added that any initiatives should be as global as possible, to avoid significant differences between national policies or standards.

On Monday, the European Commission convened a ‘green bond stakeholder meeting’ in Brussels to discuss its role in bolstering the market. It addressed a series of possible actions, including an “EC supported mechanism for governments to incentivise eligible green bonds”.“Member States could provide (harmonized) fiscal incentives for green bonds in the form of tax incentives or a risk-weighted asset model favouring green bonds,” the Commission wrote in a note seen by Responsible Investor.

“To get from niche to mainstream, it will need policy support”

The EC concluded that administrative costs would be “moderate”, while “the impact of tax incentives depends on the scope and extent of the tax”.
But, it warned: “There is a concern that if the public sector engages too strongly, it may negatively affect the growth of the market. It is argued for example, that tax benefits for green bonds give the impression that green bonds are different from other bonds and therefore in need of support. This perception, it is argued, render them less attractive to the larger institutional market. Thus, a green bond needs to be just like any other bond in order to appeal to a larger institutional market”.

Ulrik Ross, head of green bonds at HSBC, has previously spoken about the need for tax incentives in the green bond market to balance out the additional costs required by issuers to tap the market.

RI understands that China is currently readying itself to offer issuers in its domestic market tax breaks on labelled green bonds to foster the country’s market.