Germany has embarked on a journey towards a low-carbon, more resource-efficient and sustainable economy.
At a global level, Germany is fully committed to the Paris Climate Agreement and to the achievement of the United Nations Sustainable Development Goals.
Germany dedicates important budgetary resources to the achievement of these goals. With the German 2050 Climate Action Plan and Climate Protection Act,
the Federal government has set an important course. The transformation of the energy system in Germany has already been initiated at the beginning of the millennium.
The German industry is on its way into a post-fossil and post-nuclear age. The switch to electromobility is progressing. Urban districts are increasingly built in a sustainable and resource-efficient manner. Sustainable agricultural enterprises and practices are also developing fast. Finance will be a key to mobilize and channel more investments towards the development of a more environmentally friendly economy.
Part of the German Sustainability Strategy is the issuance of green Federal Securities, aiming to promote transparency and sustainability in the financial industry‘s decision-making process and to establish a green Bund curve as interest rate reference for the Euro green finance market.
Germany issues green Federal securities, starting in 2020. To get more information on these bonds, please feel free to have a look at the movie “The Twin Bond Concept".
The associated Green Bond Framework was published at the end of August 2020. It – in particular – articulates clearly, for which potential purpose the proceeds of the green German Federal securities may serve. Since green Bunds are Sovereign bonds, the use of proceeds of course corresponds to positions in the Federal budget.
Furthermore, the Framework specifies that the expenditure must always stem from the financial year preceding the year of issuance and must actually already have been paid out. Green eligible expenditure can include any type of Federal expenditure contributing to a transition towards a low-carbon, resource-efficient and sustainable economy.
- Expenditure related to real assets such as infrastructure and buildings, as well as landscapes and forests.
- Expenditure related to intangible assets, such as talent and organizations, research and innovation and scientific knowledge.
Responsible for the selection of expenditure items is an interministerial working group, consisting of 8 different federal ministries.
Let’s have a closer look at the Green Bond Framework, which provides for the following categories of expenditures for allocating the proceeds of green Federal securities:
- Expenditures in the Federal budget for transport and traffic. These are for example expenditures for federal rail infrastructure, support for the development of electric mobility or bicycle infrastructure.
- Expenditures in connection with international cooperation relating to environmental, climate and nature conservation projects. For example bilateral technical and financial support of green projects around the world, contributions to international funds, as well as bi- and multilateral partnerships.
- Expenditures for research, innovation and awareness building. This means mainly research on renewable energies and energy storage, climate change, biodiversity, nature protection, environment, coasts, oceans and polar areas.
- Expenditures in the field of energy and industry. Those are for example applied research on renewables, measures to increase sustainable heating and cooling, energy transition, and energy efficiency in buildings.
- Expenditures of agriculture, forestry, landscape protection and biodiversity. This includes expenditures for low-carbon farming and organic farming practices, forest protection or the management of extreme weather events.
A major part of the green Bund proceeds is allocated to transport expenditure. For example, it may take the form of subsidies to Deutsche Bahn in order to maintain a high-quality rail network. Already today, every ICE ride that replaces a longer lasting car trip means a significant reduction in CO2 emissions. The same applies to every truck load that is shifted to a freight train in the future. Switching traffic from road to rail leads to a considerable relief for the climate and environment. Quite simply because of the higher efficiency and lower per unit consumption of electricity and fuel.
Against this background, expenditure in the Federal budget for the transport and traffic sector, which is mainly invested in the expansion and maintenance of the rail network, will represent a considerable proportion of spending on green Federal securities for years to come. Expenditure on international cooperation in connection with climate protection and environmental projects also plays an important role as a basis for green Federal securities.
The German Agency for International Cooperation, or GIZ for short, is a service provider that supports the German government in the sector of international cooperation for sustainable development. In the past years, GIZ has already accompanied more than 1500 projects of environmental, climate and nature conservation in 120 countries. These projects have been directly financed by the German Federal Ministry for Economic Cooperation and Development.
What has been achieved so far?
Among other things:
- 1.8 million square kilometres of forest have been preserved through sustainable management;
- 1.4 million kilowatts of additional renewable energy production capacity has been created;
- greenhouse gas emissions have been reduced by 36 million tonnes (measured in CO2 equivalents)
More transparency on the expenditures, which are allocated to the proceeds of the green Federal Securities, and their future contributions to a greener environment,
will be provided by two special reports:
An allocation report, which shows the exact shares and structure of the chosen public expenditures, will be published annually from 2021 onwards.
All green Federal Securities issued within a calendar year will receive a proportional allocation of the eligible green government’s expenditure of the preceding year. The German government intends to issue at least one green security in every calendar year.
An impact reporting will be published as well. This will happen at least once during the lifetime of a green security and for each green expense-category that has been allocated. It constists of quantified metrics of environmental impacts or key performance indicators like concrete CO2-reduction, analytical reports about the environmental efficiency, listing and description of the individual or exemplary projects.
Thus, green German Federal Securities stand for the highest quality and transparency, just like their conventional twins.
For further questions relating to green Federal Securities, please contact German Finance Agency under email@example.com.