By Lorena Ruibal


U.K. Treasury Chief Rishi Sunak announced the sale of the U.K.'s first-ever green bond and updated the Bank of England's mandate to include climate change, as part of the nation's latest push to create a net-zero-carbon economy by 2050.

Two inaugural green bonds for a total size of at least 15 billion pounds ($20.88 billion) will be issued in 2021, as the country looks to build out a green gilt curve.

The Bank of England will seek to start greening its corporate bond-buying program from next year to "reflect the importance of environmental sustainability and the transition to net-zero," Mr. Sunak told lawmakers at the House of Commons.

"As investors we should not underestimate the impact this could have on the already strong momentum behind sustainable investing," said Karen Ward, Chief Market Strategist EMEA at J.P. Morgan Asset Management.

"This could tilt the preference of the central bank's asset purchases and involve considerable regulatory change to encourage private capital to do likewise," she said.

The U.K. has lagged other European countries in issuing green bonds, whose proceeds are set aside for financing environmentally friendly projects. Although it lacks an explicit green mandate, the European Central Bank started accepting bonds linked to environmental goals in January, as part of the eurozone's drive to fight climate change.

By issuing green bonds, countries and companies have often managed to achieve cheaper financing than from conventional bonds given a surge of investor demand. However, the U.K. Debt Management Office, which sells bonds to finance the government's spending requirements, was concerned that issuing green bonds would be costlier than standard gilts for taxpayers, as investors would demand higher interest rates to compensate for their relative lack of liquidity.

Italy is the latest major European country to debut in the green-sovereign-bond market, after issuing a 2045-dated green bond on Wednesday to finance a greener recovery from the pandemic.

France, which issued the eurozone's first green bond in 2017, has together with the Netherlands and Belgium sold 4 billion euros ($4.82 billion) in green bonds so far this year. Other countries including Spain, Austria and Slovenia are expected to make a foray into the green-bond market soon.

Considering both existing and new issuers, UniCredit expects the supply of European green government bonds to amount to EUR40 billion-EUR45 billion this year, bringing the size of this market to EUR100 billion by the end of 2021.

Details for the first-ever green gilt come after the government reiterated plans to launch the world's first sovereign green savings bonds for retail investors through National Savings & Investments, a government-backed savings scheme.

The savings bonds will fund projects in areas such as renewable energy and clean transportation.

"The new NS&I green bonds are likely to sell like hotcakes, seeing as environmental concerns are really beginning to take hold with savers and investors," said Laith Khalaf, financial analyst at online investment platform AJ Bell.

Yet some investors believe the U.K. should also explore other forms of sustainable investing.

The U.K. government should consider issuing sustainability-linked bonds, which link funds to targets, to help in the fight against climate change, said Joshua Kendall, head of responsible investment at Insight Investment, which oversees around GBP752 billion in assets.

"No government has yet issued a sustainability-linked bond" and doing so "would be a credible way for the U.K. Government to demonstrate its commitment to making a meaningful difference ahead of hosting COP26 later this year," Mr. Kendall said.

The COP26, the international climate summit, takes place in Glasgow on Nov. 1-12, 2021.


Write to Lorena Ruibal at


(END) Dow Jones Newswires

March 03, 2021 12:42 ET (17:42 GMT)

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