Comment: EU's landmark €750bn coronavirus recovery package to boost ESG

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The EU's landmark €750bn coronavirus recovery package is set significantly boost ESG in the region, according to David Zahn, head of European Fixed Income at Franklin Templeton.

Commenting on the EU's landmark coronavirus recovery package, Zahn, pictured above, said:

"The European Union leaders agreed a €750bn Coronavirus Recovery Fund to help support the 27 EU countries from the economic impact of Covid-19. This is a massive step forward for Europe.  

"The crisis has pulled them together, not without disagreements but the final product is still impressive.  Europe will hand out centrally funded €390bn in grants and €360 billion in low-interest loans with Italy and Spain receiving the largest stimulus. This will be supportive of the peripheral economies in Europe allowing them to rebuild their economies. 

Risk premium

"In addition, this should reduce the risk premium demanded by investors throughout the European bond markets leading to tighter spreads in government and corporate bonds.  In our view, this fiscal action combined with continued ECB support will underpin the European bond markets and allow the European economy to recover.

"The other major step forward in this legislation is the commitment that 30% of the Coronavirus Recovery Fund and the €1 trillion seven-year budget are earmarked for fighting climate change.

Massic Step

"This is a massive step towards the greening of the European economy and moving to a carbon neutral goal in 2050.

"There will be over €500bn in spending on greening of the economy and we would anticipate this driving more change across the continent.   This is very supportive to the for the Green bond market and we would expect more issuance and a broadening of issuance to support this focus."

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