UK to Launch First Green Bond, BOE Gets Green Mandate
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
"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
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 email@example.com
(END) Dow Jones Newswires
March 03, 2021 12:42 ET (17:42 GMT)
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