Italy launches record debut green sovereign bond to finance the country’s ecological transition

18 March 2021

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COP26 co-host Italy has sustainability at heart

Fully committed to the European Commission’s framework for achieving climate neutrality by 2050 and the goals set out in the European Green Deal, Italy has set itself three key 2030 targets in its Integrated National Energy and Climate Plan: to cut greenhouse gas (GHG) emissions for all non-Emission Trading Scheme (ETS) sectors by 35% (versus 2005 levels) and reduce primary energy consumption by 43% (versus 2007 levels) while increasing renewable energy sources by 30%. Italy will revise these targets this year to align them with the new plan of the European Commission to reduce GHG emissions by 2030 to at least 55% below 1990 levels.

Since 1 December 2020 Italy has held the Presidency of the G20 nations, leading their 2021 work programme, which is structured around 3Ps: People, Planet and Prosperity. The country is also in the public spotlight this year as a co-host with the UK for the COP26 in Glasgow in November and will be holding the Pre-COP and the Youth4Climate meetings in Milan in September.

After passing its “Green Act” for sustainable development in 2015 and laying out a roadmap to grow sustainable finance a year later, Italy’s Ministry of Economy and Finance (MEF) had been preparing to join other EU countries, such as France, Belgium, Ireland, the Netherlands, Poland and last year’s new entrant Germany, in issuing a green sovereign bond. The European Union is set to become a hub for sovereign sustainable finance: a 30% proportion of the European Commission’s €750 billion “Next Generation EU” recovery budget is earmarked to be financed through green bonds.

Italy’s green bond framework aligned with EU Taxonomy

At the end of February, Italy’s Ministry of Economy and Finance (MEF) announced the publication of its new Green Bond Framework (BTP Green) to enable green sovereign issuances.

Through issuing sovereign green bonds, Italy will finance public expenditure that contributes to achieving one or more of the objectives outlined in the EU Sustainable Finance Taxonomy: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems. The use of proceeds will help Italy also support the United Nations’ Sustainable Development Goals (SDGs).

Eligible categories for expenditure under the green framework include renewable electricity and heat, such as transitioning to a carbon neutral electricity grid, or the production of low carbon hydrogen; energy efficiency, including smart grid investments; transport, supporting the shift to sustainable modes of transport such as EVs and public transport; pollution prevention and control and circular economy, including waste reduction and wastewater management; and protection of the environment and biological diversity.

Investors welcome Italy’s inaugural green bond with record orders

A week after publishing its Green Bond Framework, the MEF launched its debut green sovereign bond, appointing NatWest as a joint lead manager after the NatWest team had also supported the MEF on the launch of this new debt instrument.

Italy’s first green BTP (‘Buoni del Tesoro Poliennali’), maturing in 2045 and with a 1.50% annual coupon, set a new record in both size and demand, raising €8.5billion. Around 530 investors from more than 40 countries placed orders, which resulted in a final order book in excess of €80billion. The deal topped Germany’s €6.5billion ‘Green BUNDS’, issued in September last year, as the largest sovereign green debut transaction.

The green bonds attracted a combination of new and returning investors, in particular ESG investors, who subscribed more than half of the green debt. Domestic investors bought the largest share, 26.3%, closely followed by investors from the UK who took 22.1%, while the other half of the bonds allocation went to mainly European investors.

The Italian Treasury has already announced that it aims to issue several benchmark Green BTPs with different maturities over the next few years.

Italy sending a signal to investors

Caroline Haas, NatWest, commented on the transaction and the green framework: “We’re very pleased to have supported Italy’s MEF with its Green Bonds Framework and its debut green sovereign issuance. Climate is of paramount importance to our business, our customers and the economies we operate in, and we’re proud to have been mandated for this historic transaction.”

Kerr Finlayson, Head of FBG Syndicate, Debt Capital Markets: “From an execution perspective, the fact that Italy was able to set a new record in both size and demand for European sovereign green paper is testament to how well this trade was received by investors. We were confident that Italy would be able to identify new investors and it was great to see a significant number of new and returning names in the book – over 50% of the new issue was placed with GSS investors as well which is a really impressive achievement.”

Giuseppe Schirmo, DCM Italy: “With this transaction Italy has demonstrated leadership in the fight to tackle climate change as the third G7 country to issue such an instrument. Green investors were attracted by Italy’s environmental ambition, reflected in the very strict exclusion policy for the Eligible Green Expenditures, and by the quality of the bonds as demonstrated by Vigeo Eiris’ assessment of ‘Advanced Sustainability Performance’. We’ve supported the Republic of Italy for more than a year in the preparation of this landmark transaction, analysing the country’s climate action strategy and environmental targets, also in the context of the European Green Deal. Sustainability and taking action against climate change is key for us and this transaction fully aligns with our purpose to help corporates, institutions and economies achieve net zero carbon emissions.

MEF Italy, affirmed in the Investor presentation: “With the issuance of the Green BTP we want to communicate on Italy’s policies commitment to tackle climate change and protect the environment, broaden and deepen the investor base to benefit from the growing demand for such instruments and further support the development of sustainable finance including sustainability bonds issued by Italian institutions”

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