The State should start Malta’s green bond market, Central Bank experts say
No green bond has yet been publicly listed on the Malta Stock Exchange, despite a legal framework for bonds in industries that serve climate change mitigation and adaptation, the circular economy. and the restoration of biodiversity.
Malta’s inertia in these green financial instruments was explained by Central Bank experts who surveyed both potential issuers and investors, who said that it should be the government that starts the investment in this sector with its own green bonds.
The economists found a lack of agreement in the market, marked by an apparent demand for green bonds from potential investors but a reluctance from issuers who “lack the necessary knowledge and interest to exploit this type of opportunity investment.”
In fact, only 13% of financial issuers have considered issuing green bonds to finance sustainable projects. Of these, 80% said they are likely to issue a green bond in the next five years. This indicates that most issuers “are reluctant to issue green bonds in the short term and not before they perceive a significant increase in investor awareness of the local green market.”
In contrast, 90% of potential investors said they were willing to invest in locally issued green bonds in the future.
And despite the lack of these bonds, 36% have already invested in green finance elsewhere – of these, 60% said they would prefer a green bond investment over an identical conventional counterpart.
From the results of the survey it appears that “a market leader is needed to start the local green bond market as such a move can reduce the uncertainty in this market for both the issuers and the investors, and encourage more active market players”.
As the largest issuer of bonds in the Maltese capital market, the government can take the initiative by introducing the first green bonds to the market, paving the way for the growth of this sector.
The authors of the study contrast the local situation with a global scenario in which green finance has grown exponentially since its inception in the late 2000s.
Since its inception, the sector has surpassed the $1 trillion mark in the cumulative issuance of green bonds.
“These instruments have become so popular and sought after, that some investors are willing to take a lower income, in terms of yield, just to acquire the asset in their portfolio.”
Despite the efforts of the local authorities, so far, no green instrument has been quoted on the Malta Stock Exchange. Only a small percentage of Maltese investors have invested in green finance and consider taking more green bonds if the opportunity arises.
The respondents were also not aware that the Malta Stock Exchange had established laws that allow the listing of such instruments.
Just over 100 questionnaires were sent to the target respondents, of which 56 were successfully completed. The response rate was described as “somewhat satisfactory” with the findings providing “useful insight, reflecting the opinion of stakeholders directly involved in a niche market”.
The study was carried out by Alistair Borg, an executive in the Central Bank’s monetary operations unit and senior research analysts Therese Lethridge, Kimberley Charlie Mifsud, Alan Psaila and Emmanuel Farrugia.