As Europe fights coronavirus and climate, is ‘green stimulus’ the way?

Some economies face heavy spending to meet carbon reduction targets. (AFP)
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Updated 26 March 2020

As Europe fights coronavirus and climate, is ‘green stimulus’ the way?

  • Coronavirus has taken some focus away from environmental issues but pressure is now mounting to design spending around climate change

LONDON: For European governments battling to brace economies pummelled by the coronavirus, there might be no better time to
go green.

Normally thrifty countries, such as Germany, accept they will have to spend heavily to weather the economic shock of the coronavirus. Many also face the challenge of plowing billions of euros into climate schemes to keep carbon reduction pledges.

Could “green stimulus” be the answer?

For budget hawks preparing to throw out the traditional fiscal rule book to fight the pandemic, green bonds — raising debt for funding projects such as renewable energy and public transport — might be a palatable option.

Coronavirus has taken some focus away from environmental issues but pressure is now mounting to design spending around climate change. On Tuesday, UK government adviser Chris Stark urged governments to “look to green stimulus.”

Germany is pulling out the stops, eyeing around €350 billion of new debt to finance stimulus. Europe’s biggest economy separately aims to cut greenhouse gas emissions to 55 percent of 1990 levels by 2030.

Britain, meanwhile, has promised to pay 80 percent of wages for employees facing layoffs as a result of lockdown measures, to be funded by selling more debt. It has also previously pledged to bring carbon emissions to almost zero by 2050.

Simon Bond, director of responsible investment portfolio management at London-based Columbia Threadneedle, wrote last year to the UK Treasury urging it to issue “green gilts.”

He said now was the time to roll them out given the pressing need for stimulus due to the virus outbreak.

“The rationale for green gilts is to target projects which actively contribute to the aspiration to bring greenhouse gas emissions to net zero by 2050,” Bond told Reuters. “Those projects should be part of green infrastructure spending and associated with fiscal stimulus.”

So far governments have been relatively slow to embrace green debt; there are just 12 sovereign green bond issuers worldwide, amounting to less than a tenth of the green bond market, which also includes debt from companies and other entities and saw $250 billion in new issuances last year.

But debt agencies say change is on its way.

Germany plans to issue a green bond in the second half of 2020 as does Italy; other candidates are Spain, Sweden, Denmark and Britain.

Germany’s debt agency told Reuters its green bond plans would go ahead despite the coronavirus outbreak. It has just published an update, announcing Germany would “substantially strengthen and decisively develop” the green and sustainable investment market.

It also hopes to establish a green yield curve for the euro area, as its chart below shows.

Green bonds currently comprise less than 0.1 percent of total sovereign debt, according to S&P Global. Given governments have some $9 trillion of outstanding debt worldwide, going green on even a small portion of that would give the market a huge boost.

What’s held them back so far is fear that green bonds will damage mainstream issuance programs by stealing trading volumes from those markets, eventually raising overall borrowing costs, officials from five European debt agencies told Reuters.

It could also further fragment a market already thinned out by the European Central Bank’s asset purchase program.

Even in Britain, home to a $2 trillion gilt market, debt agency chief, Robert Stheeman, has expressed doubts that issuing green gilts would be cost effective.

But debt agencies have come up with strategies that could allow green borrowing without the associated risks.

Denmark is considering an issue whose proceeds may not be earmarked directly for environmental projects but would come with a pledge for equivalent green spending, said Thorsten Meyer Larsen, head of monetary policy operations and government debt at Denmark’s central bank.

Under this idea, it would attach a green certificate to a standard government bond.

“Everyone can see that the green agenda is growing and we want to be part of that, but not in a way that’s detrimental to our existing bonds and bondholders,” Meyer Larsen said.

“So if you buy that (equivalent spending) idea then that’s a bit more straightforward.”

Germany is, meanwhile, exploring an option to sell twin bonds: So a green issue with the same maturity and coupon as its conventional peer and replacing part of the conventional bond’s auction volume, according to a market participant with knowledge of the country’s plans.

The person said that during a crisis, perhaps like the ongoing volatility, investors could switch from the green bond to the conventional issue, which would have better trading volumes.


Apple supplier Foxconn’s profit down 24% in last quarter of 2019

Updated 30 March 2020

Apple supplier Foxconn’s profit down 24% in last quarter of 2019

  • Foxconn assembles Apple’s iPhone smartphones at factories in China
  • Foxconn is among manufacturers worldwide grappling with the fallout from coronavirus restrictions
TAIPEI: Taiwanese electronics manufacturer Foxconn reported a 23.7 percent fall in profit in the last three months of 2019 on Monday as it braces for the impact from the coronavirus pandemic that has hit demand from key customers such as Apple.
Foxconn, which assembles iPhones at factories in China, reported net profit of T$47.76 billion ($1.6 billion), according to Reuters calculations, slightly above an average forecast of T$46.94 billion from 14 analysts compiled by Refinitiv.
The world’s largest contract electronics manufacturer did not give any explanation for the decline from T$62.61 billion in the same period a year earlier.
Foxconn is among manufacturers worldwide grappling with the fallout from coronavirus restrictions that have disrupted supply chains and hurt demand.
Apple, its biggest client, rescinded its outlook for the first quarter of 2020 saying manufacturing in China had taken longer than expected to resume amid travel restrictions and an extended Lunar New Year break.
Foxconn warned this month that revenue would fall more than 15 percent in businesses including consumer electronics in the first quarter. But it said revenue would recover thereafter as production returns to normal in virus-hit China.
Foxconn reported its biggest monthly drop in revenue in about seven years in February as the outbreak continued to play havoc with its business.
Shares in the company, formally known as Hon Hai Precision Industry Co. Ltd, have fallen more than 12 percent this year.