UNEP-backed working paper recommends green bond tax exemption to boost sustainable infrastructure

Investor tax breaks for green bonds rising up the agenda

Tax reductions or even exemptions for investors are one way being put forward to boost investment in green bonds in a new high-level working paper.

The report, under the auspices of the United Nations Environment Programme’s Inquiry into the Design of a Sustainable Financial System, also recommends that portfolio restrictions should be eased to promote pension funds’ investment in sustainable infrastructure.

While it is stressed that the views expressed in the paper “do not necessarily represent those of the host institutions or funders”, it does represent another call for some form of incentive to support green bonds. Just yesterday RI reported Antonio Simoes, chief executive of HSBC Bank Plc, as calling for “policy support” to boost the corporate green bond market — days after the European Commission held a meeting to discuss tax incentives.

The new recommendations come in Sustainable Infrastructure and Finance by Hans-Peter Egler, CEO of the Global Infrastructure Basel Foundation (GIB) and his colleague, Research Associate Raul Frazao.

It was published by the UNEP Inquiry and the GIB, the Swiss foundation that promotes sustainable infrastructure. Among GIB’s board members is Paul Clements-Hunt, the former Head of the UNEP Finance Initiative and a founding board member of the Principles for Responsible Investment.“Green or specific infrastructure bonds have shown in the recent years an impressive increase,” Egler and Frazao argue, but say: “Governments should nevertheless further promote green or specific infrastructure bonds with incentive schemes: granting investors with tax reductions or even a tax exemption for the amounts invested in such bonds would be a way to make such bonds more attractive.”

It comes as advocacy group the Climate Bonds Initiative said in its latest ‘State of the Market’ report today (July 1) that the “climate-aligned bonds universe” now stands at $694bn – up 16% over 2015.

The 41-page UNEPGIB report also tackles pension funds’ investment restrictions, saying: “Legal requirements in the form of quantitative portfolio restrictions for pension funds should be eased to give space for more infrastructure investments.”

The report concludes: “In order to further promote asset allocation into the new investment vehicles, policymakers and governments also have to step in – globally – to improve the attractiveness of long-term investments by providing specific conditions for sustainable and resilient infrastructure investments.”

The UNEP Inquiry was set up in January 2014 and published its final report, The Financial System We Need, in October 2015 and is currently focused on actions to take forward its findings.