Btp Green, the new sovereign bond to finance Italy's ecological transition

In early 2021 Italy entered the market of sovereign bonds that finance sustainable development through the issuance of the new “BTP Green”, widening the country’s commitment to the European Commission’s framework for achieving climate neutrality by 2050 and the goals set out in the European Green Deal. The first Italian Sovereign Green Bond will finance Italy’s Green Transition strategy already started in the past years.

This approach is fully consistent and complimentary to recent developments at European level, where the NGEU package foresees a relevant share of funding to be devoted to green expenditures, and to Italian choices regarding the G20 presidency for 2021, that have allowed the climate change issue to regain a central role.

To date, Italy has been at the forefront of the sustainable finance market, mainly through its leading Green and Social Bond Issuers. The growth in private-sector issuance of Green Bonds means that corporate Green Bonds are fast becoming an important segment of the Italian bond market.

Italy now wishes to foster a partnership between the public and private sectors to further develop the supply of sustainable finance instruments. In this context, the Republic of Italy has decided, through the Budget Law for 2020, to enhance its commitment to the environmental sustainability by issuing Sovereign Green Bonds (SGBs).

In February 2021, the Italian Ministry of Economy and Finance has indeed published the Framework for the Issuance of Sovereign Green Bonds the document which collects and summarises the characteristics of the SGBs that are issued by the Italian Treasury, as well as the commitments that are fulfilled in relation to the expenses in relation to which these bonds are issued and the related reports that will be made available.

Through the issue of SGBs, Italy will finance public expenditures intended to contribute to the achievement of one or more of the following environmental objectives of 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; Protection and restoration of biodiversity and ecosystems. Moreover, the use of proceeds will help Italy support the 2030 Sustainable Development Goals of the United Nations.

To be eligible under this Framework, expenses must fall within the definition of one of the following Green Sectors: Renewable electricity and heat, Energy efficiency, Transport, Pollution prevention and control and circular economy, Protection of the environment and biological diversity, Research.

Eligible expenses must be included in the Italian State budget. For the purpose of the Sovereign Green Bonds, an Inter-ministerial Committee has been set up and it is responsible for setting out the information concerning expenses that will be eligible in relation to the issuance of SGBs. A report, entitled the “Italian Sovereign Green Bond Allocation and Impact Report”, will be published annually, to update investors and the public over the management and allocation of the bonds’ proceeds and their environmental impact through adequate indicators and metrics.

The Framework will be reviewed on a regular basis, including its alignment to updated versions of the ICM A Green Bond Principles the EU Taxonomy for Sustainable Activities, and, when it becomes available, to the future EU Green Bond Standards. Future versions of the Framework will be published on the website of the Ministry of Economy and Finance.

The details related to the first issuance of BTP Green

The Ministry of Economy and Finance 10th September 2021 made available the details related to the public green eligible expenditures, with positive environmental impact, financed with the net proceeds of the first BTP Green issuance that took place on the 3rd of March 2021. The bond, with a 1.50% annual coupon and maturing on the 30th of April 2045, has been issued for an amount of 8.5 billion Euro.

The eligible expenses fall within the definition of one of the 6 Green Categories below:

1.Renewable electricity and heat;

2.Energy efficiency;

3.Transport;

4.Pollution prevention and control and circular economy;

5.Protection of the environment and biological diversity;

6.Research.

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