The Central Bank of Hungary (MNB) will start to support the introduction of green finances in the capital market in co-operation with other authorities and market participants to reduce risks related to climate change and other environmental issues and to raise the volume of green market financing in Hungary.
Green bonds have a significant potential of becoming flagship instruments, as their segment has shown impressive growth over the past few years in foreign advanced markets. However, with some exceptions, it is still at an early stage in Hungary – and in Central and Eastern Europe in general, reads the statement of MNB.
An exception was the Hungarian Green Government Securities, a 15-year 1.5 billion euros green bond issued by the government for the first time at the beginning of June, which primarily collected dedicated funds for government investments related to climate and environmental objectives defined in Hungary’s Clean Development Strategy.
According to the analysis of the Hungarian Central Bank, stepping up green bond issuance would mobilise additional funds and new foreign investors for investments that serve the country’s sustainability, climate and energy policies. International experience shows that green bonds are suitable for the diversification of investors, as they give access to ESG managed funds or funds to achieve positive environmental impacts, which could be an important advantage, especially for corporate green bonds.
Nevertheless, the MNB notes that the issuance of green bonds by companies, banks and possibly local governments is unlikely to proceed to the desired extent at the start without incentives and supporting actions by the Bank and other regulators. The global corporate green bond market saw impressive growth in the past year, although it is still very much in its infancy.
Just a few days ago Hungary also saw its first corporate green bond transaction, which created an important new benchmark for the local market. CPI Hungary Investments, subsidiary of CPI Property Group – leading owner of income-generating real estate in Hungary – issued 30 billion forints (about 86 million euros) of senior unsecured bonds with a 10-year bullet maturity with a coupon in forint of about 2.25 per cent. The green corporate bonds would be issued under the Bond Funding for Growth Scheme implemented by the Hungarian Central Bank.
The climate law passed recently by the Hungarian Parliament confirms several climate-related commitments including reaching climate neutrality by mid-century, reducing greenhouse gas (GHG) emissions by 40 per cent and increasing the share of renewables to at least 21 per cent in the gross final energy consumption by 2030.
The MNB notes that these objectives also generate significant demand for investments and besides credit-based financing by banks, green bonds could contribute to creating the best possible financing background.
Mobilising the public and private sector to finance sustainable investments will be crucial to achieving the goals set out in the European Green Deal. The MNB notes that a number of green EU regulations related to capital markets are expected to come into force in the near future, and they will primarily affect investment service providers, insurance companies and funds.