Austria raised 1 billion euros ($983.20 million) on Tuesday from the auction of the first ever green T-bill, a move aimed at attracting shorter-term investors to buy environmentally friendly assets.
So far, governments and companies selling green debt, a fast-growing market which funds environmentally friendly expenditure, have sold bonds with much longer time horizons.
But with central banks and a wider group of investors interested in green investments to bolster their sustainability credentials, interest in shorter-term green debt is growing.
Companies, including Spain’s Iberdrola and French state railway SNCF, have sold green and other types of sustainable commercial paper.
Austria, rated AA, is the first government to issue a green T-bill – short-term government debt which usually matures in less than a year.
The bill, maturing on Feb. 23, 2023, priced for a 1.25% yield, with a 2-basis-point “greenium”, Austria’s Treasury said, referring to the slightly lower yield on green debt due to high demand.
Demand relative to the amount issued was 2.69 times.
Markus Stix, director of the Austrian Treasury, called short-term green securities the “missing link” in the green market.
“We had lots of discussions with ESG investors and they told us they would like to buy green short-term instruments but that there was no supply in this format,” Stix told Reuters.
“The short-term green securities will attract, for example, central banks, money market funds or bank treasuries, which are very active at the short end of the curve but at the same time want to include ESG aspects,” he added.
Austria’s issuance of short-term green debt, which will also include commercial paper from next year onwards, is part of a broader programme that kicked off in May with the sale of a 27-year green bond.
It plans to fund 20% of the overall programme through short-term instruments and has identified just over 5 billion euros of green expenditure overall for 2021 and 2022 each, mostly for clean transportation, according to an investor presentation.
Austria’s approach contrasts with most governments issuing bonds maturing in longer than 10 years.
“Green projects take quite a long time, so they don’t usually lend themselves to short-term lending,” said Mizuho rates strategist Peter McCallum.
Addressing that mismatch, Stix said the Treasury intends to roll over green T-bills and commercial paper regularly, and up to the 27-year horizon of May’s green bond.
A banker familiar with Austria’s issuance said investor feedback showed sustainability mandates for money market funds are less advanced.
Could issuance help “ESG mandates being extended into the short term of the markets as well? We’re quite excited to see if we can extract some information and feeback on exactly that point through this exercise,” the banker said.
It was easier for Austria to shift expenditure for funding through green T-Bills, given its overall T-Bill programme was only launched in 2021 and it just started issuing green debt, the banker said.
While some governments that are yet to launch green issuance programmes might consider T-bills, the banker said, existing issuers would likely focus on adding to their outstanding green bonds.