Issue green sovereign bond to finance UK’s Covid-19 recovery, investors urge Government

The Government is facing mounting pressure to join-up its approach to financing a green economic recovery from the recession

The Green Finance Institute has collaborated with the Impact Investing Institute and LSE’s Grantham Research Institute on Climate Change and the Environment to draw up a proposal for the bond, published late on Wednesday (7 October).

The proposal outlines key areas that the ‘Green+Gilt’ bond should finance: renewables; low-carbon transport; industrial decarbonisation through hydrogen and CCS; building retrofits; nature restoration and reskilling those left unemployed by Covid-19 for “green-collar” jobs.

It does not speculate a price for the bond, but rather outlines the broad benefits of issuance. As well as the obvious and immediate benefits of creating jobs and other social benefits and spurring the transition to a net-zero economy, it outlines the reputational benefits the UK could reap by positioning itself as a green finance leader ahead of COP26. While the UK has fared well in many global green finance rankings in the past, less than 3% of green, social and sustainability bonds issued to date have been denominated in Sterling.

By issuing a green sovereign bond, the UK Government would be able to present an established framework for further issuance that it could share with other nations at the COP, the proposal elaborates.

The proposal also emphasises the impact which such a move would have on private investors and public sector bodies’ approaches to finance. It states that private investors and bodies like local authorities would benefit from a “template” and from a real-life, at-scale demonstration.

“This would help to meet the growing demand from retail investors and institutional investors for high-quality assets that deliver positive social and environmental impact,” the document states.

To evidence this claim, 30 major investors, asset owners and other financial organisations have given their backing to the proposal. They include AXA, BlackRock, Barclays and NatWest.

“Tackling climate change and social inequality are shared problems that require global collaboration between governments, companies and individuals,” NatWest Group’s chief financial officer Katie Murray said. “A Green+ Gilt would help to position the UK as a leader on these issues and deliver a greener and more inclusive economy for our country.”

Build back greener

Green sovereign bonds have been issued by the Swedish and German governments in recent weeks, as plans for financing Europe’s Covid-19 recovery begin to take shape.

Germany’s bond totalled $7.7bn, making it the largest sovereign bond to be issued during September. The month saw around $50bn of green bonds issued by governments and private sector bodies, according to Bloomberg NEF, making it a record month for issuance. Should this trend continue, 2020 will become a record year for issuance in spite of the pandemic.

The publication of the Green+ Gilt proposals come as Boris Johnson is facing calls to clarify how he plans to finance the Government’s ten-point plan for a green recovery. The plan is being unveiled in sections over the coming weeks, following on from the first portion – new measures to support the offshore wind industry.

Sarah George