“Many Shades of Green Bonds…”

Green bonds have their critics, but as the market has grown, it has spawned a broader industry of sustainability bonds that seek to make borrowers change behaviour. 

Decoding COP27: the many shades of green bonds

One of the ways to raise funds for environmentally beneficial projects are through so-called green bonds.

Banks, governments and businesses say financial markets can play a crucial role in driving the shift to a lower-carbon world.

At the COP27 climate conference in Egypt, companies and country delegates are discussing ways of enhancing the market for green bonds, or bonds that are linked to projects deemed environmentally beneficial.

Companies borrowed record sums via sustainable bonds last year: issuance totalled $859 billion, compared with $534.3 billion in 2020.

EU Commission said gas price cap impossible

The European Union’s executive body told its 27 member countries at a seminar on Monday that it was not possible to create a gas price cap that would not affect long-term contracts or supply security.

After much wrangling at an all-night summit, EU leaders agreed last month to task the European Commission with proposing a temporary gas price cap in power generation and a temporary price corridor to bring down costs for consumers.

But a compromise between those like France, Spain and Belgium that want a cap and the German-led camp opposing it meant additional conditions were attached, namely that any cap could not affect long-term contracts, lead to an increase in gas consumption or provoke producers to reroute supplies elsewhere.

“Now, the Commission has said it’s impossible to have a cap that meets these criteria,” said one of the diplomats, adding that national envoys of the 27 EU member countries to the bloc’s hub, Brussels, would discuss that next on Friday.

“There will be a lot of emotions flying high,” the diplomat said.

The matter has divided EU countries for months as they look to address an acute energy crunch that is driving record-high inflation and threatening recession in the bloc.

ECB to continue raising rates even as economy suffers

The European Central Bank will continue to raise borrowing costs even as the euro zone economy suffers because letting inflation stay high would be even more painful, two top ECB policymakers said on Tuesday.

The ECB has been raising interest rates at record pace and steering investors towards more hikes ahead to bring double-digit inflation in the euro zone back to its 2% target.

ECB vice-president Luis de Guindos and Bundesbank president Joachim Nagel said these involved costs in terms of economic growth.

“I will … do my utmost to ensure that we, the Governing Council of the ECB, do not let up too early and that we continue to push ahead with monetary policy normalization – even if our measures dampen economic development,” Nagel told a German banking conference, adding large rate hikes were necessary.

“Because in a situation where monetary policy gets behind the curve, the overall economic costs would be significantly higher,” Nagel said.

De Guindos added the ECB’s policy would “reduce aggregate demand, both consumption and investment, but it’s the only possible way forward that we have because doing nothing would be much worse”.

The euro zone’s economy is widely expected to shrink this winter due to a combination of higher energy costs, weaker global demand, and higher borrowing costs.

Both de Guindos and Nagel backed trimming the ECB’s multi-trillion Euro bond holdings, which were accumulated in the past decade when inflation was too low.

De Guindos said this so-called quantitative tightening had to be done “with a lot of prudence” but it might start while the ECB is still raising rates.

“The characteristics and the timing of our QT, which may overlap or not with the process of normalising the interest rates, will be discussed in December,” de Guindos said. “Personally, I don’t see any sort of sequencing here.”

Markets expect the ECB to continue raising rates until the middle of next year, with a peak rate of around 3% from 1.5% currently.

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