// Green covered bonds on course for growth

"The 'Green Pfandbriefe' brand meets concrete criteria".

An interview with Dr Frederik Kunze, NORD/LB Markets Strategy & Floor Research, Part 2.

How has the market for Green Covered Bonds developed globally and where do we stand in Germany?

In retrospect, it is fair to emphasise once again how dynamically the segment for Green Covered Bonds in general, but also for Green Pfandbriefe, has developed in recent years. And the signs continue to point to growth. In the current year, more green covered bonds have already been issued in the EUR benchmark segment than in the previous record year of 2020. In our opinion, this is all the more remarkable when one considers that the "conventional" covered bond market is rather characterised by a pronounced sluggishness with regard to new issues. The outstanding volume of green covered bonds in the benchmark segment now totals EUR 20.5 billion, distributed among 16 issuers from five countries - and the trend is upwards, both in terms of volume and issuers.

What distinguishes the Green Pfandbrief and what do investors appreciate overall about Green Covered Bonds and the Green Pfandbrief?

With a view to the advantages from the investor's point of view, as already mentioned at the beginning, the combined characteristics of a comparatively safe form of investment with the aspects of green investing can be emphasised for both Green Covered Bonds and Green Pfandbriefe. We are also observing an increasing demand for green assets on the part of institutional investors, which in turn also results from the needs of their customers or stakeholders. Green Pfandbriefe are characterised not least by the fact that in Germany there have been minimum requirements for issuers to fulfil for some time now. Conversely, this also means a high degree of certainty for investors that those Pfandbriefe which (may) bear the name "Green Pfandbriefe" (must) fulfil specific criteria.

Where is there still a need for improvement?

Despite all the success stories with regard to the dynamics, there is still a certain need for improvement on the part of the international standards. This by no means only applies to the sub-segment of Green Covered Bonds or Green Pfandbriefe. The EU has recently made a start with the taxonomy and the Green Bond Standard and defined requirements for green assets that would ultimately also apply to the "EU Green Bond" brand. Nevertheless, from the perspective of regulatory policymakers, there are always trade-offs to be made. For example, too loose requirements for "green assets" could dilute the actual meaning of the green bond. On the other hand, too strict criteria could place an undue burden on individual markets or restrict the group of eligible assets too much. Finally, it is always a question of taking national or regional differences into account. For example - if we return to the example of green covered bonds - not all building standards are identical in the EU countries.

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