State should jump-start Malta green bond market, say Central Bank experts

Central Bank experts said government must take initiative on green bonds after survey reveals mismatch between investor interest and reluctance of private issuers

No green bonds have yet been publicly listed on the Malta Stock Exchange, despite a legal framework for bonds in industries serving 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 surveryed both potential issuers and investors, who said it should be the government to jump-start investment in this sector with its own green bonds.

The economists found a mismatch 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 in tapping this kind of investment opportunity.”

In fact, just 13% of financial issuers have considered the issue of green bonds to finance sustainable projects. Of these, 80% said they are likely to issue a green bond within the next five years. This indicates that most issuers “are reluctant to issue green bonds anytime soon and not before they perceive a significant increase in investor awareness within 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 absence 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 survey results it is apparent that “a market leader is necessary to jumpstart the local green bond market as such a move might diminish uncertainty in this market for both issuers and investors, encouraging more active market players”.

As the largest issuer of bonds in the Maltese capital market, the government could take the initiative by introducing the first green bonds to the market, which would pave 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 cumulative green bond issuance.

“These instruments have become so popular and sought after, that some investors are willing to take in less return, in terms of yield, just to acquire the asset within their portfolio.”

Still despite local authorities’ efforts, so far, no green instrument has been as yet listed on the Malta Stock Exchange. Only a small percentage of Maltese investors have invested in green finance and consider taking on more green bonds should the opportunity arise.

Respondents were also not aware that the Malta Stock Exchange had established laws that allow the listing of such instruments.

Just over a 100 questionnaires were sent out to targeted respondents, of which 56 were successfully completed. The response rate was described as “somewhat satisfactory” with the findings providing “a useful insight, reflecting the view of stakeholders directly involved in a niche market”.

The study was conducted by Alistair Borg, an executive at the Central Bank’s monetary operations unit and senior research analysts Therese Lethridge, Kimberley Charlie Mifsud, Alan Psaila and Emmanuel Farrugia.