The government must allow for green gilts

Peter Green

Peter Green

Next month’s Budget presents an opportunity for Rishi Sunak, the new Chancellor of the Exchequer, to make a change that could be of great benefit both to the UK and to ethical investors.

One of the items at the top of our wish list for 11 March would be for the government to legislate to enable the UK to issue “green” gilts.

Green gilts are (or, rather, would be) government bonds whose proceeds would be earmarked for specific projects with an environmental or social benefit.

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The attraction to ethical investors, including potentially our members, of being able to purchase green bonds is obvious.

Healthy Investment, a friendly society, has its origins in the nineteenth-century temperance movement and has always sought to invest in an ethical manner: this means, among other things, no direct investments in the alcohol, tobacco or arms industries.

Our fund managers can choose which companies’ equities to purchase and which corporate bond issues to support.

They can vote at shareholders meetings and, in other ways, exert direct pressure on the businesses in which our members’ funds are invested.

When, however, we seek the security that can only be offered by our own country’s sovereign debt, all UK investors have a stark choice: take it or leave it.

We can choose not to invest in companies that manufacture nuclear submarines but, if we want to hold gilts, we must effectively lend the government money to buy them.

There is, of course, an argument that, in a democratic country, investors all have the opportunity to choose the government, and thus the priorities on which the proceeds of gilt issues are spent, at the ballot box.

In practice no UK government in the last 100 years has been elected on 50 per cent or more of the popular vote.

A majority of voters will in almost every case have not voted for the government of the day.

Every government needs their money but none has, so far, been keen to listen to their opinions.

UK investors are, nonetheless, leading the way in supporting green debt but they are forced to go abroad to do so.

British investors have been some of the biggest buyers of green bonds issued by the Polish, French and Dutch governments.

The head of the UK’s Debt Management Office, which is responsible for issuing gilts, last month expressed scepticism about the case for green gilts unless investors were to pay a premium.

I would tend to disagree.

The market would, in time, set the level at which green gilts would trade but overseas experience shows that the same borrower, over the same duration, is unlikely to be able to expect to borrow more cheaply for one purpose than for another.

According to the Financial Times, green debt in France and Ireland trades roughly in line with those countries’ conventional bonds.