The UK government’s much-hyped green bonds will finally be launched in September – and the timing couldn’t be better.
UK investors have been increasingly choosing environmentally and ethically themed products, while more and more institutions are carving out ESG (environmental, social and corporate governance) segments in their investment portfolios.
According to recent figures from the Investment Association, ESG investments quadrupled in 2020, while a separate study by OnePlanetCapital found that the ESG market is set to double in 2021.
Recent research from The Investor Index found that 27 per cent of millennial investors were interested in ESG products. Meanwhile, a growing number of alternative lenders have been adding green options for their investors.
Triodos Bank and Abundance Investments have been offering green bonds within an Innovative Finance ISA (IFISA) wrapper for several years. Earlier this year, digital bond trading platform WiseAlpha added green bonds to its marketplace for the first time. A number of peer-to-peer lenders have also been pioneering green construction methods and offering environmentally-friendly loans.
But green lending will enter the mainstream later this year when Chancellor Rishi Sunak unveils the UK’s first green sovereign bonds.
Initially announced in March as part of his Budget speech, Sunak confirmed yesterday that the bonds will open for investment in September of this year via the NS&I.
Read more: BoE vows to invest in green corporate bonds
“We will reaffirm the UK’s position as the best place in the world for green finance,” said Sunak, in a speech to bankers at Mansion House yesterday (1 July).
“We’re giving the public the opportunity to invest in the government’s green initiatives through NS&I’s world-first green savings bonds.”
Sunak described the green bonds framework as “the most ambitious approach of any major sovereign.”
So what do we know about the bonds to date?
- They will be open to all retail investors
The minimum investment amount is just £100, meaning that the government’s green bonds will be accessible to the vast majority of retail investors. The maximum investment is £100,000.
- They will have a relatively short term time
Unlike traditional UK gilts, which tend to mature over a period of five, 10, 30 or even 50 years, these bonds will have a relatively short three-year term time.
Investors will not be able to withdraw their capital before this three-year period. It is not yet known if investors will be able to reinvest in another green bond after their original bond matures.
- All money invested will be used to fund green projects
The government expects to raise £15bn through the green bonds, and all the money raised will go towards funding green projects. These include new solar power initiatives, wind farms, greener transport, protecting natural resources, and planting more trees.
- The bonds will contribute to the UK’s wider environmental goals
The government has committed to making the UK carbon neutral by 2050, and to reduce emissions by at least 68 per cent (compared to 1990 levels) by the end of the decade. In order to ensure that these targets are met, the Treasury and the Financial Conduct Authority have been working on requirements for businesses and investment firms to disclose sustainability information.
A Green Technical Advisory Group has been appointed to oversee the government’s delivery of a “Green Taxonomy” – a framework for environmentally-friendly investments, which aims to position the UK at the forefront of green finance.
- We still don’t know the rate
Sunak has not disclosed the expected rate for the government’s green bonds, although Sarah Coles, a personal finance analyst at Hargreaves Lansdown, has predicted that the returns may be largely in line with Triodos Bank’s ethical savings bond, which has a target fixed rate of 0.4 per cent.
“The NS&I green savings bond will let savers put their money where their mouth is, and support sustainable projects with their savings,” said Coles.
“But while it’s a useful addition to the growing world of green savings, there are already accounts with similar aims on offer. What really matters here is the rate, and NS&I is remaining tight-lipped on that front.
“So far, all we know is that the bond will support projects that aim to tackle climate change and make the environment greener and more sustainable – like green transport, renewable energy, and energy efficiency. This isn’t enormously far from the aims of existing ethical savings accounts from the likes of Triodos Bank.”