Environmental, Social, and Corporate Governance (ESG) labelled bonds are a fast growing segment in capital markets. These instruments connect issuers seeking to raise finance for activities with an evident sustainable character with investors wishing to make their capital available to support projects with sustainable environmental and social impact.
The Commission entered the sustainability market in 2020 with its SURE social bond.
With NextGenerationEU, the Commission will also enter the green bonds segment of the ESG market, by seeking to raise 30% of the NextGenerationEU through the issuance of green bonds.
Social bonds: SURE
The Commission is issuing social bonds to finance its up to €100 billion SURE instrument on the capital markets. It has used the proceeds to provide back-to-back loans to beneficiary Member States.
With the funds, EU Member States financed different short-time work schemes, and other similar measures to preserve employment and support incomes.
To be able to issue the SURE bonds as social bonds, the Commission has adopted an independently evaluated Social Bond Framework.
All EU SURE social bonds are compliant with the Social Bond Principles of the International Capital Market Association (ICMA).
The Commission will be reporting twice a year on a results achieved thanks to SURE. The first report – which confirms that the instrument supported between 25 and 30 million people in 2020 – is available online.
EU SURE disbursements
The European Commission has so far disbursed nearly €90 billion under SURE, to all benefitting 19 EU Member States. A detailed overview is available here:
The European Commission’s intention to issue 30% of NextGenerationEU green bonds, amounting to up to €250 billion in current prices, aims to:
- Provide access to a wide range of investors, in particular ESG-focused investors, in line with the objectives of the NextGenerationEU funding strategy;
- Reconfirm the Commission’s commitment to sustainable finance and to green policies and cement Europe’s leading role in sustainable finance markets;
- Support the European green transition on advantageous financial terms to the EU;
- Boost the size of the green bonds’ market and inspire more issuers to issue green bonds;
- The increased availability of a safe and sizeable green asset will enable portfolio managers to diversify further their portfolio of green investments. Investments in riskier green projects can be balanced out with safe EU green bonds. This would increase the financial flows to green technologies with risk potential, thus benefitting the real economy in the longer run.
The intention of the European Commission to issue 30% of NextGenerationEU as green bonds is a clear illustration of its commitment to sustainability.
It will allow NextGenerationEU to harness market demand for ESG bonds and create added value for the ESG market as well as for the real economy. It is a win-win for all.