By Silvia Marchetti
ROME (MaceNews) – Italy’s government is ready to issue its first-ever green debt to fund a maximum of EUR 35 billion in key environmental investments, according to ruling coalition sources.
A global investor call is expected to take place on Monday at 3.30 p.m. CET to gauge market demand, followed by a series of investor one-on-one calls upon request to analyze the details of the issuance. The size of the long-term debt issuance will reflect market demand.
Sources stressed that the issuance is “imminent” and could likely occur at any time over the next week or so, at the latest by end of March, but one noted that usually the bond placement “tends to quickly follow the global investor call so to avoid changing market expectations and mood.”
The goal is to place on the market green bonds with a long maturity, of or above 10 years. “Given green and environmental-friendly investments have a long-term impact on growth, it is essential to frame such operations in a reasonable timeframe that allows investors to actually see how and where their investment are earmarked and deployed,” said a source.
Officials clarified that the EUR 35 billion figure is the total state investment in the green economy which could be potentially funded by green bonds, not that there will be a EUR35 billion issuance. The upcoming bonds issuance amount will depend on market conditions and demand and would go into refinancing green expenditures already held in 2018-2020 and new spending earmarked for 2021.
New Prime Minister Mario Draghi has made sustainable green development a cornerstone of his ruling agenda, creating a new super-ministry for transition to push through innovation in key sectors linked to the fight against climate change.
The source explained that the green bond proceeds would be incorporated within the public budget and used according to public finance needs.
Key investment areas have been identified alongside a framework scheme containing the standards and sectors of specific projects, which was just recently cleared following an in-depth study by an inter-ministerial committee.
The framework for issuance defines the eligibility criteria for the green expenditures included in the state budget and classified as eligible, the use of proceeds of each issuance, the monitoring and the environmental impact of such expenditures.
The document also weighs in the compliance of the eligible expenditures with the Green Bond Principles (GBP) of the International Capital Market Association (ICMA) with tight requirements for what kind of projects qualify as having a key environmental impact, and the compliance with the European Union’s Green Bond Standards currently being discussed by the European Commission.
“It is vital that such spending, funded through the green bonds, are constantly accounted for to involve investors in the evolution and impact of their investment. That’s why the framework is key. Investors want to see how and where their money is used,” said another source, adding that a yearly report will be issued on the work-in-progress of each green investment.
An overhaul in transport and upgrade aimed at curbing C02 emissions represent the largest share of green bond-funded investments in Italy’s transition to a sustainable economy. Other key investment sectors include renewable energy, anti-pollution projects, energy saving (green buildings), biodiversity, and related research projects covering the five areas.
Sources stressed that the green bonds have a two-fold objective: diversify the toolbox of Italy’s existing types of state securities and lure new investors to support the green economy by raising its potential.
“This kind of issuance is mostly targeted at potential investors who don’t hold yet any Italy state security but support the government’s ‘green’ approach,” said one source.
More green bonds issuances are also likely to follow, with sources stressing that it would not be a one-off operation. “Once you launch such securities on the market, it must be with a long-term perspective that inevitably takes into account the evolving challenges of transition to a more sustainable economy”.
This first issuance is expected to be directed at institutional investors but sources do not rule out that in future it could also be a good way to involve retail.
There’s also another key factor that supports the issuance of green bonds. The European Central Bank’s purchase of environmental-friendly securities within its Pandemic Emergency Purchase Program (PEPP) program make such issuance very timely.
Sources noted that appetite for green bonds is rising due to their appeal. “This kind of debt is perceived as good debt, more sustainable than ordinary debt. It’s an investment on long-term economic sustainability with a potentially high impact.”