(Bloomberg) -- Europe is set to become the world leader in green bond issuance and one of the side effects could be a stronger currency.
That's the view of Standard Bank, which sees the euro rising to $1.30 in a year's time, spurred in part by the European Union's plan to sell 225 billion euros ($265 billion) of green debt as part of its pandemic recovery fund. With investor demand surging for environmentally-friendly assets, that could favor inflows into the common currency, it said.
“We suspect that if a country, or region, can really lead the way in this type of investment it could carry its currency with it,” wrote Steve Barrow, head of the bank's foreign-exchange strategy, in a note to clients Tuesday. “In contrast, those that lag behind could get left behind, not just in terms of their ESG credentials but also in terms of their currency's performance.”
The EU's planned recovery fund has already helped boost the euro, putting it on course for its first yearly gain in three. The currency has climbed 5.1% in 2020 to $1.1786.
While the EU's green debt issuance won't begin until next year, the bloc plans to start selling social bonds to fund a job support program this month. And countries within the EU such as France have already taken a lead in sustainable finance, with Germany selling its first green sovereign bond last month.
By comparison, the U.S. has fallen behind. Even a victory for Democratic nominee Joe Biden -- who has called for $2 trillion in spending on clean energy -- in next month's presidential election may not be enough to bridge the gap, according to Standard Bank.
“The EU has rather stolen a march on the U.S. with the green bonds contained in the pandemic recovery fund,” Barrow wrote.
©2020 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
