The European Green Deal agreement of 11 December 2019 emphasized the need to better direct financial and capital flows towards green investments. The objective is to facilitate the financing of sustainable growth and the transition to a climate-neutral and resource-efficient economy.

The European Investment Plan under the Green Deal, adopted on 14 January 2020, stipulated that the Commission would establish a European Green Bond Standard (EUGBS).

On 6 July 2021, the European Commission published its new dedicated strategy for promoting sustainable finance.

The Green Deal and Green Bond Issuance

To this end, the European Union aims to become a leading player in the international green bond market. The European standard includes four requirements:

  • Bonds must relate to one of the activities listed in European Regulation (EU) 2020/852 of 18 June 2020;
  • Issuers must act transparently by publishing regular reports;
  • Issues will be audited by independent reviewers
  • who must be registered with the European Securities and Markets Authority (ESMA).

The regulation of 18 June 2020 sets out six environmental objectives (Article 9), two of which address climate change.

Each of these objectives is broken down into a list of activities to achieve them.

Furthermore, the European Union aims to become a leading player in the international green bond market. It has several major stock exchanges, such as Amsterdam and Luxembourg, which specialize in green finance.

An agreement on a “European Green Bonds standard” was also reached between the Parliament and the Council of the EU on 28 February 2023.

Several reasons explain the European Union's interest in green bonds:

The EU – through the Commission – intends to promote the development of green technologies, particularly those that would reduce CO2 emissions and, where appropriate, decrease its external energy dependence.

To achieve this, access to significant financial resources must be facilitated. Of the €750 billion to be borrowed as part of the post-pandemic recovery plan for Europe, a target of over 33% has been set for green bonds.

Within this framework, the European Union decided to issue its very first green bond, raising €12 billion in October 2021.

The European Union aims to become the world's leading issuer of green bonds.

As part of its recovery plan, the European Commission has indeed planned to issue between 200 and 250 billion euros in green bonds over the next few years. As of January 2023, global green bond issuance totaled approximately $2.5 trillion.

The ECB’s quantitative easing policy (2015–2021) paved the way for the monetary financing of green bonds through secondary market purchases.

The quantitative easing program implemented by the ECB (which resulted in the creation of approximately €2.6 trillion in additional money) between 2015 and 2020 created a “window of opportunity” (to use Professor De Grauwe’s term from the London School of Economics).

Could the ECB, if necessary, refinance the EIB or any other financial institution dedicated to sustainable finance even more extensively by making substantial, planned purchases of the “green” bonds that the latter might issue specifically for this purpose over the next 10 to 15 years?

During her hearing before the European Parliament in September 2019 (to secure ratification of her appointment), Christine Lagarde (2019) acknowledged that the ECB was purchasing green bonds issued by the European Investment Bank (EIB):

“The EIB is already a major issuer of green bonds. And I understand that the ECB also buys some of these products on the secondary market.”

Before Christine Lagarde, Benoit Cœuré (2019 – member of the ECB Executive Board until January 2020) had defended this idea, notably during a discussion with French members of parliament at the National Assembly on May 15, 2019:

“If climate change is the political priority, governments can decide to ask the EIB to do more for the climate. And [the EIB] could do so because interest rates are at zero and because the ECB is buying EIB bonds.

Thus, indirectly, through monetary policy, we have created a very favorable environment for long-term investment.”

New Possible Paths: A Marshall Plan for Massive Investments Financed Through a Mixed Monetary/Equity Approach to Accelerate the Ecological Transition

At the European level, a Marshall Plan could be implemented to accelerate the ecological transition. This plan would enable massive investments over 10 years, financed through a mixed monetary/equity approach, both:

  • through upstream monetary creation: the ECB purchasing "green" bonds issued by the EIB (or any other financial institution dedicated to financing such a plan); and
  • through downstream equity injections: the EIB (or the dedicated financial institution) providing equity to companies undertaking projects eligible for financing.

The acceleration of investments necessary for the ecological and energy transition could be financed through this mixed monetary/equity refinancing scheme.

These investments could be partly financed through equity (or quasi-equity) directly by the EIB, or by dedicated affiliated investment funds:

  • in association with investors from the corporate sector (small, medium, or large enterprises – depending on the type of investment),
  • in accordance with public-private partnership agreements, under which the EIB will act as a minority shareholder (with a planned exit like a private equity fund) in the capital of the project companies carrying out the financed green investments.

Africa had approximately 1.3 billion inhabitants in 2019. According to UN projections, the African population will grow by more than 90%: the continent is expected to reach approximately 2.5 billion inhabitants by 2050, and the UN also forecasts that it will exceed 4 billion inhabitants by 2100.

The global and European challenge is to ensure that this unprecedented population growth is accompanied by sustainable economic growth, at least equivalent if not greater, so that it is inclusive while preserving the planet's ecological balance.

It should also be noted that an increased ecological risk in certain areas should be anticipated – potentially leading to desertification or flooding, which would cause displacement of unemployed populations and undoubtedly new conflicts (over control of water or other resources).

Watch the intervention of Jean Michel Nogueroles in video