Investors managing £10tr urge UK government to issue maiden green bond
BlackRock, NatWest, Barclays and Schroders among firms urging government to issue sovereign bond ring-fenced for green projects in wake of Covid-19 downturn
Investors managing more than £10tr in assets yesterday urged the government to issue a green bond that would support investments that can decarbonise the UK's economy while tackling social inequality in the wake of the pandemic.
Backed by 30 major asset managers, banks and investors - including Schroders, BlackRock, Barclays and NatWest - the proposal for a UK sovereign bond dubbed 'Green+ Gilt' has been developed by the Green Finance Institute (GFI), Impact Investing Institute (III) and LSE's Grantham Research Institute on Climate Change and the Environment.
They argue that the UK's first green sovereign bond would help the government reboot the economy in the wake of the coronavirus crisis, while meeting its twin goals of levelling up regional inequalities and building a net zero emission economy by 2050.
Moreover, the issuance of the bond would catalyse the development of a sterling green bond market and deliver a strong signal to capital markets and international policymakers of the UK's commitment to sustainable finance ahead of its presidency of the COP26 UN climate summit in Glasgow next year, they argue.
"This is the time for the UK to showcase its ambition in green and sustainable finance," GFI chief executive Dr Rhian-Mari Thomas said. "Issuing a Green+ Gilt will provide finance for green infrastructure, create green jobs and catalyse the sterling green and social bond market."
Issuance of green bonds - debt instruments designed to raise funds for projects and businesses that have a positive environmental and social impact - has risen rapidly worldwide in recent years. A study this week by BloombergNEF indicates $200bn have been issued in 2020 so far, with a cumulative total of $1tr since 2007.
The green instrument has long used by companies, but is becoming increasingly popular among governments. Last month, Germany raised €6.5bn from its first ever green bond, and the EU is said to be exploring green bonds as part of its plans to borrow €750bn to fund Europe's economic recovery from Covid-19. But while the Netherlands, Ireland, Poland and France have all issued sovereign green bonds in recent years, the UK has yet to do so, despite its claims of being a world leader in green finance.
But while supporters of green bonds maintain that they provide companies and governments with a means for securing capital for green infrastructure or corporate transformation projects, critics contend that lack of oversight and verifiable standards have allowed investments labelled ‘green' to be used to fund projects in high carbon industries.
However, Schroders CEO Peter Harrison countered that UK's first green bond would help accelerate private capital into green investments at a time where sustainable economic growth is critical, offering a "clear commitment to the environment, to both investors and future generations".
"It would help attract further capital into this important area. Financing greener infrastructure and jobs are long-term investments that will support sustainable economic growth," he added.
Environment Agency chair Emma Howard Boyd, climate economist and Grantham Research Institute Lord Nicholas Stern, and Lord Mayor of the City of London William Russell have endorsed the proposal, as have business organisations such as the Confederation of British Industry and the Principles for Responsible Investment.
Lord Stern, who earlier this summer published a landmark paper with Nobel Prize winning economist Joseph Stiglitz that argued that investments in a green recovery would outperform traditional stimulus programs, stressed that the Green+ Gilt was a "key instrument" that would help the UK build back greener.
"It can signal the direction of future opportunities and reduce perceived risk," he said. "Now is the time to be ambitious. Green investment can have rapid impact and drive strong and sustainable growth."
A spokesperson from the Treasury told BusinessGreen that the government remained "open to new debt financing instruments and will continue to monitor the case for a sovereign green bond". They added that green finance would remain "top of the agenda as we build back greener and accelerate towards net zero by 2050".
The proposal has been sent to the government just days after Prime Minister Boris Johnson gave arguably his biggest backing yet to the green economy, in a speech to the Conservative Party conference on Tuesday in which he announced a new 40GW target for offshore wind by 2030, alongside £160m funding to support turbine manufacturing as the first stage in a promised 10-part plan for a "green industrial revolution".
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