Hungary seeks to 'jump-start' its green bond market
Hungary joined the club of green govies issuers early June. Its inaugural €1.5bn 15-year green bond, with interest rate of 1.75%, had been subscribed at €7.5bn by 345 investors. The Eastern European country will not stop there.
The Hungarian central bank and financial watchdog MNB on Tuesday kick-started a 14-month reflection aimed at the planning of a sustainable capital markets strategy. This initiative is backed by the European Commission's Structural Reform Support Service and includes the participation of the European Bank for Reconstruction and Development (EBRD). Thus, Hungary, which already took a few ‘green’ measures for its banking sector, wows to develop its today inexistent green bond market.
In its preliminary analysis, which will form the base document for the upcoming discussions, MNB underlines that “among domestic companies, even those companies whose activities would have easily allowed them to qualify their bonds as green did not ask for this qualification.” Nonetheless, several companies and credit institutions are examining the possibility of issuing such bonds. As for investment funds, Hungarian asset managers do not seem to have much green appetite yet. In a previous study published in July 2019, MNB tallied only 15 Hungarian funds, with assets of €11.4m, claiming they were holding green assets in Spring 2019.
The financing of Hungary’s climate targets
Two more elements push Hungary to do more in the green bond sector. First, the Hungarian parliament recently passed a bill focusing on climate protection. A few climate targets, whose deadlines are set for 2030 or 2050, are enshrined in that new law. Among others, these encompass the reduction of at least 40% of greenhouse gas emissions in comparison to 1990 levels by 2030, the achievement of carbon neutrality by 2050 and a minimum 21% rise of the share of renewable energies in the country’s energy consumption mix by 2030.
MNB is convinced that local green bond issuance will enable the country to finance these goals and help it to meet the targets set. Furthermore, Hungary is late in comparison to its neighbours. Baltic countries, Poland and Slovenia “have already done pioneering work and issued green bonds that were successful on the market and generated interest among investors,” stresses MNB. The regulator does not want to miss on a $258bn estimated green bond market in 2019 according to figures from the World Economic Forum and the Climate Bonds Initiative.
Among first avenues drawn by MNB to ‘jump-start’ the Hungarian green bond market, the central bank is considering fiscal incentives for the issuance of green bonds by local banks and green mortgage bonds as well as for investors. The question of whether Hungarian authorities should bear additional costs linked to the structuration of green bonds [in comparison to traditional bonds, ed.] will also be examined. Lastly, MNB is planning to communicate a lot on Hungary’s green program through sustainable finance events. Budapest, the country’s capital, will be hosting the next international green finance conference on 12 October 2020.