Rishi Sunak’s second Budget as Chancellor confirmed the launch of new green bonds, to be made available through NS&I this summer.
NS&I carries mass-market appeal and combined with the feel-good factor – green bonds are good for the planet, not just your pocket – our research suggests they will be popular.
It is also an easy way for the government to soak up some of that spare cash that has accumulated in lockdown, and direct it towards job-creating, environmentally friendly projects too.
Think war bonds for a woke, post-Covid Britain.
Government will want to promote the initiative, and advisers and the industry should anticipate strong consumer interest and awareness later in the year when the scheme launches.
Think war bonds for a woke, post-Covid BritainThere is a misconception among some advisers that ‘my sort of client is not interested in this stuff’. Our research with advised investors clearly shows this is not the case, particularly after 2020 as better returns contribute to increased engagement and interest.
From a provider perspective, what impact might the launch of a cash savings bond from NS&I have on an industry offering long-term investments with market risk?
ESG investing
Firstly, will green bonds cannibalise the market for ESG funds? Perhaps at the margins if investors see them as a convenient way to park some guilt-free cash savings in a low-risk way without touching their Isa or pension.
But in the main, green bonds will attract cash savers rather than investors.
In fact, the launch of green bonds from the government could potentially lend some legitimacy to the idea of mixing finance with sustainable outcomes, and have a huge impact on general awareness and interest.
Our Sustainable Savers Census research indicates awareness is a major barrier to the growth of all variants of ESG funds, whether ethical, sustainable or impact.
Among those investors that told us they did not use ESG funds, 52 per cent said they simply did not know enough about them.
Similarly, less than a third of workplace pension holders said they were aware they could ask the pension provider for a sustainable portfolio.
The government scheme has the potential to put green money issues on the map and make doing ‘the right thing’ with your wealth – a conversation started this year by groups including pensions-focused Make My Money Matter - a mainstream topic of conversation.
Rishi Sunak’s marketing machine
When the NS&I launch goes live expect Sunak’s marketing machine to crank up the volume.
Since taking up residence at 11 Downing Street, Sunak has developed a reputation for dramatic videos like this one, and glistening social media posts.
Social media will be saturated with spade-bearing bigwigs explaining how many trees can be planted with £1,000 of savings with NS&I.
The publicity around green bonds may help to get people thinking about the direct impact their money could have – if they can save the planet with their cash savings why should they not do so with their investments?
But it will present challenges too. The funds industry remains hell-bent on talking about how ESG has “been in our DNA for decades”. And of course this is a way broader subject than a handful of low-carbon, or thematic green funds.
But the contrast between what we expect to be clear, simple messaging on green bonds, compared to sincere, yet slightly convoluted fund industry messaging on broader ESG funds (coupled with nuanced stewardship debates on whether holding oil firms is evil or essential) could backfire and turn a newly receptive audience off.
Greenwashing finger-pointing is likely to do more to confuse rather than to clarify.
Evidence we collected from advisers illustrates that clear, engaging and meaningful messaging remains an issue.
The number one thing they believe asset managers could do to help them engage clients in conversations about their ESG preferences is to provide more tangible evidence of the impact an investment has.
Holly Mackay is chief executive of Boring Money
