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‘Devil in detail’ in green bonds plan

The government confirmed plans to issue “green bonds” to retail investors in the summer as it burnishes its environmental credentials ahead of hosting the COP26 international climate summit in November.

The investment industry welcomed the launch, but cautioned that little was known about the green bonds or the projects they would help fund. “The government is hoping to cash in on the demand for sustainable savings . . . [but] we don’t yet know what term the green bond will run for, or what rate it will pay,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown, the investment platform.

The green bonds will be offered to retail investors through National Savings & Investments, the state-backed savings scheme, and will have 100 per cent government guarantees. Projects funded by the bonds will be chosen in line with green bond principles determined by the International Capital Market Association, a financial markets non-profit based in Switzerland.

Full details of the green bond offering, which aims to help the UK government hit its target of net-zero carbon emissions by 2050, are not expected until June.

Coles cautioned investors not to expect high rates. “Funding is so cheap at the moment, and savers have so much money sloshing around that it doesn’t make sense to pay over the odds.”

It is also unclear what projects the bonds will finance. “While this is an important step, the government must make sure this isn’t a PR ‘greenwashing’ exercise,” said Claire Jones, head of responsible investment at LCP, an investment consultancy.

Analysts noted that while the government made explicit commitments to green targets, it had declined to raise fuel duty, viewed as a key lever in tackling climate change.

“The devil will be in the details,” said Kate Elliot, deputy head of ethical, sustainable and impact research at Rathbone Greenbank Investments. “Climate change is an international issue, and what is missing from the Budget is a commitment to be a global leader in this fight.

“Cast the definition of ‘green’ too wide and it will undermine investor confidence and dilute the real world positive impact that could be achieved,” she said.

Bonds labelled as sustainable have exploded in popularity in recent months, with governments and companies expected to issue $500bn in green debt globally in 2021, according to research from Swedish bank SEB.

Experts indicated that take-up of the UK bonds will be a huge test. If yield rates are low, but investors are still keen to buy, it will send a clear signal to the market that investors are willing to sacrifice returns to invest in investments focused on environmental social and governance (ESG) goals.

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‘Devil in detail’ in green bonds plan

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The UK is joining a growing group of countries issuing green bonds, including France, Germany and Italy, which launched a €8.5bn sovereign bond to strong demand on Wednesday.

Investors and savers were largely left out of other parts of the Budget this year, as Sunak declined to extend the penalty reduction in Lifetime Isa withdrawals, which was dropped from 25 per cent to 20 per cent in March 2020 to allow investors to access funds more easily during the pandemic.

The Budget did not raise contribution caps on Lifetime Isas, regular Isas, which have an annual contribution limit of £20,000, and Junior Isas, with an annual subscription limit of £9,000.

Sunak also emphasised the Treasury’s commitment to making the UK a destination for companies hoping to list on public exchanges. But investment platforms cautioned that retail investors are too often excluded from public listings, and the opportunity to join institutional investors in buying shares at attractive prices.

Richard Wilson, chief executive of DIY brokerage Interactive Investor, urged the government to encourage retail investors’ access to capital raising, including public offerings. “Primary markets, like secondary markets, also need to embrace retail access.”

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