£15 Billion UK Green Sovereign Bond to Step Up Social Impact

UK government adopts proposal which emphasizes strategic approach to use-of-proceeds.

The UK’s planned ‘green gilt’ will begin the merging of green and social bond impact categories, as it seeks to achieve the integrated policy outcomes required to achieve a just transition to a low-carbon economy.

Nick Robins, Professor in Practice for Sustainable Finance at the LSE’s Grantham Research Institute on Climate Change and the Environment, told ESG Investor that the UK government integrated the “spirit” of a green gilt proposal in its planned sovereign bond.

The proposal, which attaches social co-benefits to green bonds, was developed by market participants alongside the LSE’s Grantham Research Institute, the Green Finance Institute and the Impact Investing Institute. It was put forward to the government in October last year.

“The novel feature of the proposed ‘Green+ Gilt’ is that financed [green] projects would consciously deliver social co-benefits in addition to environmental outcomes, thereby contributing to a ‘just transition’,” the proposal said.

In the budget announcement last week, the UK’s HM Treasury said that it will issue a green gilt with a total minimum of £15 billion in the financial year.

While the UK government has not officially named its sovereign green bond “Green+ Gilt”, it will showcase the social contribution that each green bond has by reporting about the social benefits of the green projects.

Sarah Ellis, Policy Analyst at the UK Debt Management Office, explained: “The primary purpose of the green gilt is to raise finance that will contribute towards delivering the government’s green and environmental agenda, however the government is also committed to providing information publicly about the social benefits of its green gilt spending.”

Robins explained that the social bond framework can be used to categorise the social impacts of a green bond.

This, it is hoped, will, for example, lead to a more strategic approach to project financing and help achieving policy objectives, as the nation’s economy recovers from the Covid-19 pandemic.

“It starts making the green finance agenda far more relevant and central to post-Covid recovery and core finance,” said Robins.

By applying the social co-benefits filter, it becomes easier to channel the green funding to those communities and places that need it most, he added.

Simon Bond, Director of Responsible Investment Portfolio Management at Columbia Threadneedle Investments, said: “Following the Covid-19 pandemic there is an urgent need to support both a green recovery and level up infrastructure spending across the country.

“We have seen robust commitment from the investor community to invest in bonds that directly address the impacts of the pandemic and support affected communities.”

The UK’s green bond issuance is planned for this summer, with a further issuance to follow later in 2021. Its green bond framework is planned to be revealed in June.

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