Curmi & Partners

The MSE Green Market and its role in the Covid-19 recovery

By Noelle Micallef

The green bond market is relatively young and has developed rapidly in recent years. Climate Bonds Initiative, an international organization working to mobilize the bond market for climate change solutions, reports that the amount of green bonds issued worldwide increased from $36.7bilion in 2014 to $290.2billion in 2020.

In support of Malta’s commitment to achieve its European Green targets, the Malta Stock Exchange (MSE) has recently established bye-laws that allows the listing of green bonds on the local capital market, known as the MSE Green Bond List. The bye-laws define Green Bonds as “debt instruments, the proceeds of which will be exclusively applied to finance or re-finance, in part or in full, new and/ or existing eligible Green Projects”. Green Projects include, but are not limited to, projects relating to renewable energy, energy efficiency, clean transportation, climate change adaptation and green buildings. A Green Bond issuer must ensure that the bonds satisfy the four core components of the Green Bond Principles (GBP) established by the International Capital Market Association. These are:

 •    Use of Proceeds – The Green Projects underlying the debt instrument should provide clear environmental benefits such as climate change mitigation, climate change adaptation, natural resource conservation, biodiversity conservation and pollution prevention and control. In meeting any one of these six environmental objectives, the issuer and promoters of the Green Projects shall not significantly harm any of the other five environmental objectives.

      Project Evaluation and Selection – The issuer of the Green Bond should clearly communicate the environmental sustainability objectives, the process by which the issuer determines how the projects fit within the eligible Green Projects and the related eligibility criteria. A qualified Accredited External Reviewer (AER) would need to be appointed to evaluate these criteria.

 •    Management of Proceeds – The proceeds of the Green Bond should be kept in a separate account and each transaction has be to be tracked in an appropriate manner with an established formal internal process. Each transaction must be related to achieving the objectives of the Green Project underlying the instrument.

 •     Reporting – An AER report is required when applying for admission to the MSE Green Bond List, and the issuer must ensure that eligibility is retained throughout the bond term. Updated AER reports are required on an annual basis, certifying that the bonds remain eligible for Green Bond status.

Similar to other issues on the MSE, an issuer of a Green Bond would still need to appoint a sponsor, create a prospectus in line with the Listing Rules and obtain admissibility to listing from the MFSA before the admission of the bond to the MSE Green Bond List.

Market intelligence suggests that green bonds were issued in primary markets at lower interest rates and with larger order books than conventional bonds in 2019 and 2020, however, in the secondary market, green bonds do not differ from similar conventional bonds in terms of interest rates and liquidity. A study by Nordea Bank has shown that green bonds have been more resilient than traditional bonds in times of crisis. The ICE BofA Green Bond Index was compared to a synthetic non-green index, and the iTraxx Main index was used for reference. As shown in the chart below, there was a sharp dip in the difference between the spread of green bonds and that of non-green bonds as the risk sentiment spiked in the beginning of the crisis. This indicates a relative outperformance of green bonds. The relative outperformance was about 35bps at the peak, when compared to the initial levels before the onset of the crisis.

Green Bond spread (rhs) – Non-Green Bond spread (lhs) compares the option-adjusted spreads of ICE BofA Green Bond Index and a synthetic index. The synthetic index consists of non-Green indices weighted by the percentage full market value shares of sectors included; Source: Open Insights by Nordea

The reasons for this outperformance include the fact that issuers of green bonds are usually large, stable, and forward-looking entities which are usually better equipped to withstand a crisis. Also, oil companies, which are usually hit hard in a crisis, rarely issue green bonds. Finally, green bond investors are typically long-term investors which are unlikely to make changes in their portfolios due to a crisis.

Green bonds may have a big impact on the recovery from the Coronavirus recession, and therefore the MSE Green Market Bye-laws have been issued at the right time. The European Commission had announced that 30% of the bloc’s €750billion Covid-19 recovery package would be raised via green bonds. Volkswagen also issued its first green bond raising €2billion. Germany has issued its first ever green bond with a 30-year maturity for a total volume of €6billion just last week. These developments and the segment’s attractive risk-return profile may strengthen the argument for traditional investors to consider including a green instrument in their fixed income portfolios.


The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange, and is licensed by the MFSA to conduct investment services business.