Early impressions of UK’s first sovereign green bond package




First confirmed at the March 2021 national budget speech, the UK’s first Green Gilt is a 12 year bond, maturing in 2033. Impressively, a total of £16 billion has already been raised over two separate issuances, setting the precedent for the largest green issuance by any sovereign. This bond sale, issued at scale, exemplifies the UK’s commitment to supporting sustainable finance, and its plan to become a net zero country by 2050. Therefore, should more investors back these gilts? Just how effective can they be?


UK’s green gilts mark important developments in the global green bond markets and demonstrate how funds generated can directly deliver environmental benefits. A key advantage of these gilts is in spurring further growth in the local green bond market, which remains relatively small despite many UK companies seeking to operate sustainably. As has been the case in other countries, green gilts are likely to catalyse the development of the sterling green bond markets. Furthermore, UK’s goal to reach net zero by 2050 suggests that a considerable amount of funding will have to be mobilised and deployed at scale to transition its economies towards sustainable operation, which David Katimbo-Mugwanya, a senior fund manager at Edentree believes as a fundamental justification for greater investor backing.


However, the effectiveness of the gilts relies on how the UK can limit greenwashing, a process where companies aim to placate customers by making unsubstantiated claims on the environmentally friendliness of its activities. Ultimately, transparency of disclosure and a stringently constructed governance framework is key, and the UK has to commit to documenting the environmental impact and wider social co-benefits of projects, such as job creation and infrastructural development. Finally, investors also have a responsibility to verify that these projects can and will make tangible change for these green gilts to have success.


Jie Yu Timothy Ng


References:

Wise, Harry. “What Effect Will 'Green Gilts' Have on the Planet and Investors?” This is Money. This Is Money, September 30, 2021. https://www.thisismoney.co.uk/money/markets/article-10024657/What-effect-green-gilts-planet-investors.html.

Treasury, HM. “UK's First Green Gilt Raises £10 Billion for Green Projects.” GOV.UK. GOV.UK, September 21, 2021. https://www.gov.uk/government/news/uks-first-green-gilt-raises-10-billion-for-green-projects.

“UK's Path to Net Zero Set out in Landmark Strategy.” GOV.UK. Accessed November 4, 2021. https://www.gov.uk/government/news/uks-path-to-net-zero-set-out-in-landmark-strategy.

Anastasia Petraki and Saida Eggerstedt, “The UK Green Gilt's Debut: What We Know and What We Want to See.” The UK government's green bond debut: what we know and what we want to see, October 22, 2021. https://www.schroders.com/en/us/private-investor/insights/fixed-income/the-uk-governments-green-bond-debut-what-we-know-and-what-we-want-to-see/.


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