Italy set to offer its first green bond, betting on strong demand

MILAN: Italy is set to offer its first ever green bond in the coming days, taking advantage of bumper demand for environmentally friendly assets.

Rome will soon join its euro zone peers, including France, Germany and the Netherlands, to launch an environment-friendly government security, and will become the first of the EU's "peripheral" markets to do so.

The Italian deal was expected by the end of 2020 but was derailed by a political crisis when the majority coalition led by former Prime Minister Giuseppe Conte collapsed.

A new so-called government of national unity under Mario Draghi, former head of the European Central Bank, has set up a new ministry for ecological transition, in a sign that Italy is getting more serious about its green commitments.

"Subscribers have proven to be very keen on this type of instrument ... (and) governments can really make a difference in how the economy and society of a country works," said Chiara Mio, professor of management at Ca' Foscari University in Venice.

Agénce France Trésor debuted in Europe with its first green sovereign bond in January 2017, and Germany stepped in last September, placing 6.5 billion euros that attracted demand over 33 billion euros.

France's first green Oat due June 2039 offers a 0.3% yield.

In January the Spanish Treasury said it would issue a green bond in the second half of 2021.

Proceeds from the sale of Italy's green bonds will be used to fund spending on projects for the transition to a low-carbon economy and will focus on six key areas including climate change mitigation and pollution prevention, the Treasury said last week.

"The Treasury's new offer will satisfy demand from both specialized and traditional investors ... the demand is potentially high, mainly still unexpressed," said Filippo Mormando, head of Capital Markets at MPS Capital Services.

The note is likely to have a maturity of more than 10 years, the former deputy economy minister said in January.

Based on experience from past European issues, green sovereign bonds carry a premium - the so-called "greenium" - equal to the price investors are willing to pay to get hold of green securities.

The European Union plans to offer green bonds for an estimated 225 billion euros from the second quarter, equivalent to around a third of the region's COVID-19 recovery package.

According to Italian Treasury data, Environmental, Social and Governance (ESG) issuance globally exceeded $400 billion last year, a marked growth from the $290 billion the previous year, with half of that coming from green bonds.

The number of green securities issued globally is seen rising to around $350 billion this year, the Treasury added.

With appetite for green bonds set to grow in coming years, "central banks are also considering adjusting their monetary policy in order to favour the transition to sustainable finances," said Intesa Sanpaolo fixed-income strategist Chiara Manenti.

The ECB expects to wrap up an overarching policy review in the second half of the year, and a new approach to tackling climate change will be a key element of its conclusions.

S&P data showed the European green bond market is the largest worldwide, almost as big as that of North America and Asia Pacific combined.

"The public pays a higher attention to the climate and environmental issues, but we still need to make sure that behind a 'green' label stands a 'green' matter", said UniCredit strategist Luca Cazzulani.