UK's first sovereign green bond package raises £10bn
The UK Government has today (21 September) launched its first green gilt, with reports that investors have placed a record £90bn in orders for the bond.
Books opened on the gilt this morning at 8am in London and closed an hour later. Reuters first reported the £90bn in orders – a figure which surpasses all previous records for debt sales by the UK Government or any of the devolved administrations.
The UK Government has since confirmed that £10bn has been raised through this morning's sale.
The gilt package was first confirmed by Chancellor Rishi Sunak last November and subsequently confirmed at the 2021 Budget speech in March. Then, in July, the price of the UK’s green gilts were set at £15bn by the Treasury.
Throughout this process, Sunak has promised that the UK’s first green gilts will not be its last.
Projects such as zero-emissions buses, energy-efficient housing schemes, offshore wind projects and initiatives that improve climate adaptation such as flood defences and biodiversity improvements are all set to meet the criteria to access green finance. Sectors excluded from recieving bond proceeds include fossil fuel exploration, nuclear power, weapons, tobacco, gaming, palm oil and alcoholic beverages.
The gilts launched today will mature in June 2032 and July 2033. At least a further £5bn has been promised by the end of 2021.
Commenting on the launch, Sunak said: "Green finance is vital in helping us to tackle the environmental challenges we face, and the launch of our first green bond is a signal that the UK continues to be a world leader in this area “This funding will be used to finance vital green government projects across the country, including things like clean transportation, renewable energy and preserving our natural environment. In helping us to build back better and greener, it will also help to create jobs as we transition to net-zero.”
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A spokesperson for UKSIF told edie: "We strongly welcome the green gilts issuance today and it’s very, very encouraging to see the huge demand (which we expected) from investors.
"In our ‘Policy Vision,’ we backed the UK’s initial decision to introduce green gilts and to report on the contributions of green gilt-financed spending towards social co-benefits, though we noted the UK has been relatively late on the international stage in introducing green gilts.
"As a result, I think that while strongly welcoming today’s news, we and many of our members would like to see the government commit ahead of COP26 to explore and consider the case for social and sustainability-linked bonds, which would show true leadership we feel. Both could make an important contribution to the wide range of investment strategies many of our members offer to meet clients’ specific investment objectives, and play an important role in financing a sustainable transition. The ‘Green+ Gilt’ proposal outlined by the Green Finance Institute and others could be a good starting point for government to consider, and it could, in time, be a world-leading innovative instrument by closely aligning green and social objectives."
BNP Paribas's head of country for the UK Anne Marie Verstraeten said: “It is essential for finance to mobilise capital in the transition towards a net-zero economy in the UK, and this inaugural green gilt demonstrates the momentum in finance to address critical climate and biodiversity challenges on the road to COP26.”
The Green Finance Institute's programme director Ryan Jude told edie: “The UK Government’s first green gilt issuance is a landmark moment and, with the accelerating growth in ESG funds, it is no surprise to see a final order book of around £100bn.
"This has led to the largest pricing benefit, or 'greenium', seen to date for a sovereign green bond. It is also encouraging that the Treasury has promised that the Eligible Green Expenditures will be aligned to the future UK Green Taxonomy where possible. We are very proud at the Green Finance Institute to be supporting the implementation of the UK Taxonomy, by providing independent advice to Government through leading the important work of the Green Technical Advisory Group (GTAG).”
The UK is one of 16 countries to have issued sovereign green bonds and, according to LinkLaters, global issuance of sovereign green bonds to date has raised some £95bn.
Other issuers include France, which, according to the Climate Bonds Initiative, raised more than £9.4bn through issuance in the first half of 2021, and Germany, which raised more than £5.3bn in the same six-month period. France is aiming to raise £25bn in green gilt issuance in total, having launched its first package in 207.
Almost 90% of the global value of sovereign green bonds has been from issuances by European nations. However, other major players in the space include Hong Kong, Indonesia, Chile, Nigeria and Fiji.
Global issuance surpassed records in 2020, with nations striving to align their economic recovery packages for the Covid-19 pandemic with climate targets ahead of COP26
“Disappointingly, the UK accounted for less than 5% – not a market-leading percentage," said BMO Asset Management's Keith Balmer.
"But, as the UK Government has been late to market, its issuance is likely to grow significantly. And the hope is that this will create impetus for corporates to issue more green bonds; more financing to go towards sustainable initiatives."