The growth of different types of green bonds are a boon for ESG portfolios, commentators have said, but they have warned of the need to ensure the proceeds are actually being invested in 'green' initiatives.
Chancellor Rishi Sunak is set to announce the launch of the world’s first sovereign green savings bond at the Budget announcement on Wednesday.
The initiative will allow savers to contribute to funds that invest in environmental projects such as clean transport and renewable energy and provide opportunities for green jobs.
The green savings bond will be offered through NS&I, the Treasury-backed savings organisation which offers premium bonds and other savings products. The new product will be linked to the UK’s inaugural green gilt, which is yet to be issued, following the Chancellor’s announcement last year.
The Treasury has said that it will publish more details about how proceeds from the green gilt and green savings bond will be invested and how it will report on the environmental impact in the coming months.
Kate Elliot, deputy head of ethical, sustainable and impact research for Rathbone Greenbank Investments said: “This move towards connecting public debt and climate goals is a welcome step and is something that Rathbone Greenbank has been calling for some time.
“However, the devil is in the detail as the UK government’s framework around use of proceeds and reporting on impact for sovereign green bonds is yet to be finalised. Clear and ambitious guidelines on what counts as ‘green’, alongside a commitment to transparency on the use of proceeds is key to the credibility and long-term success of financing programmes such as this.”
Richard Butters, ESG analyst at Aviva Investors said: “It’s an exciting time for UK personal finance as there will now be options to 'green' personal savings and investments across the risk spectrum.
“From green savings bonds to green gilts, to green liquid and illiquid investments, and ultimately green pensions– individuals in the UK can direct their money to short and long-term climate positive goals.
“This will help the UK meet its net zero 2050 ambitions and show the broader global financial system what is possible.”
Mitch Reznick, head of sustainable fixed income at the international business of Federated Hermes said that the new offerings will make it easier for investors to reinforce their portfolio’s ESG credentials “because they can use this security as the sovereign complement to the traditional green bonds from corporate issuers.”
“As such, in aggregate, the ESG portfolio that includes green gilts or other green sovereign bonds, will have a more well-rounded sustainability characteristics.”
“Longer term, we can expect to see a reference rate for green bonds established and an increase of green bonds issued from corporates. As such, the green bond market will become more liquid and it will have more breadth, and therefore more accessible. It will also give investors an option to invest in government bonds without having to forsake their goal of investing sustainably.” He added.
The announcement comes amid the publication of a number of measures intended to bolster the UK’s environmental capabilities, including visa reforms to encourage highly skilled workers, including technology experts, researchers and engineers to come to the UK.
The Chancellor Rishi Sunak said: “The UK is a global leader on tackling climate change, with a clear target to reach net zero by 2050 and a Ten Point Plan to create green jobs as we transition to a greener future.
“In a world first, we’re launching a new green savings bond which will give people across the UK the opportunity to contribute to the collective effort to tackle climate change.
“And we’re also launching new competitions that will unlock innovation in renewable energy and help us develop the cutting-edge technology we need to reach net zero.”
Alongside the green bond, the Chancellor is expected to announce the launch of three programmes that will receive funding from the £1bn ‘Net Zero Innovation Portfolio’ – a UK-wide portfolio to support the development of the innovative technologies we need to reach net zero.
This includes £20m for a competition to develop floating offshore wind demonstration projects, which can be deployed in deep waters where winds are strongest, as well as almost £70m for a competition to deliver first-of-a-kind long-duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods.
A further £4m will go towards a biomass feedstocks programme to identify ways to increase the production of green energy crops and forest products that can be used for energy production.
