The Federal Council has decided to lay the foundations for the future issuance of green government bonds. What exactly are green bonds and how has the market for them developed? Here's a brief introduction to the topic.
The Confederation currently has gross debt of just over CHF 100 billion. Most of this debt, i.e. CHF 65 billion, consists of so-called Confederation bonds. The Confederation raises funds on the capital market with these debt instruments, which have maturities of up to 50 years.
What are green bonds?
An issuer can raise money on the capital market with green bonds in the same way as with conventional bonds. In the future, green bonds will be a specific component of Confederation bonds and will diversify the Confederation's financing instruments. The money raised with green bonds cannot be used freely; it may be used exclusively for the financing of projects that have a positive impact on the environment, e.g. promoting renewable energies, increasing energy efficiency, preserving biodiversity or constructing environmentally friendly buildings.
Green bonds do not automatically lead to more environmental expenditure, as they are only a financing instrument. Parliament has to decide on additional green expenditure to achieve higher environmental expenditure. Green bonds as an instrument are intended to promote the competitiveness of the Swiss financial centre, strengthen the application of international standards in Switzerland and encourage the issuance of green bonds by private players.
How has the green bond market developed?
The market for green bonds is still relatively small, both in Switzerland and internationally, but it has grown robustly in the past few years. Green bonds were first issued in 2007, but have only become established in recent years. By the end of 2020, a total of just over USD 1,000 billion worth of green bonds had been issued worldwide, aggregated over all years. That sounds like a lot, but compared to the total volume of bonds outstanding on the capital market, it is a niche product. A third of all green bonds are issued by governments or public bodies. So governments play an important role in the issuance of green bonds.
However, only a very small proportion of sovereign issues have been green bonds up to now. In Europe, France, Germany and the UK are particularly active, along with some others. The European Commission has also announced that around a third of the EUR 750 billion NextGenerationEU programme is to be financed with green bonds and has already issued its first green bond. The United States, the global benchmark issuer, has not yet announced any plans to issue a sovereign green bond.
Swiss issuers have a total of just over CHF 5 billion in green bonds outstanding on the Swiss capital market. This corresponds to 1.2% of the total Swiss capital market. To date, green bonds have been issued mainly by banks and insurers, as well as the cantons of Basel Stadt and Geneva.
When will the first green Confederation bond be issued?
The Federal Finance Administration will now develop a framework for the issuance of green bonds in order to specify the design, criteria and processes. In particular, it should set out the green expenditure for which the funds raised with green bonds will be used or how the project selection process will be defined, what the issuance volume should be and how transparency can be ensured with appropriate reporting. The framework will be submitted to the Federal Council by the end of 2022.
Last modification 17.11.2021