ESG InvestingJul 1 2021

Treasury announces raft of green finance initiatives

Search sponsored by
Treasury announces raft of green finance initiatives
BySally Hickey

The Treasury has announced a set of green financing initiatives including its green bond and green finance framework.

The government's green savings retail product, issued via NS&I, will be tied to a sovereign green bond and will have a three-year fixed-term.

Consumers will be able to invest between £100 and £100,000 in the product, which will be issued later this year.

In a statement, the Treasury said the aim of these was to enable individuals to support green projects such as delivering infrastructure improvements and creating green jobs across the country.

The Treasury will also issue at least two green gilts this year, with issuance in the 2021-22 financial year totalling a minimum of £15bn. The aim of these issuances is to build out a green yield curve.

Finally, the Treasury has released more details on its green financing framework, which sets out which projects are eligible for the proceeds of green bonds.

The framework aligns with the International Capital Market Association's (ICMA) green bond principles.

It includes the six types of green projects that will be financed across the UK by the green gilts and retail bonds.

These include clean transportation, renewable energy, energy efficiency, pollution prevention and control, living and natural resources and climate change adaptation.

As part of the framework, the government has committed to annual allocation reporting and biennial reporting on environmental impacts and social co-benefits, to ensure transparency for investors.

The framework has been assessed by V.E. (part of Moody’s ESG solutions), who found a ‘robust’ level of assurance on the contribution of the UK’s framework to sustainable development, which the Treasury said was the same achieved by other sovereign issuers.

The Carbon Trust also reviewed the framework’s guidance on allocation of proceeds, and found they ‘align sensibly’ with the Climate Change Committee’s recommended climate targets for the UK.

Laith Khalaf, financial analyst at AJ Bell, said the success of the new NS&I bond will be determined by the interest rate on offer.

“Of course, thanks to the Bank of England’s QE programme and ultra-low interest rates, the government can borrow money extremely cheaply, currently around 0.4 per cent per annum for 5 years.

"Any premium offered by the green savings bond above prevailing gilt yields is effectively an extra burden for the taxpayer, and costs incurred in this way will naturally be weighed up against other fiscal decisions taken by the chancellor to repair the nation’s finances in the wake of the pandemic.

“Sunak is between a rock and a hard place here. If he hikes rates up for the green bond, he’ll face criticism for needlessly spending money when government borrowing is already sky high."