RISHI Sunak will announce the introduction of ‘green’ savings bonds in tomorrow’s Budget, giving investors the opportunity to buy into projects dedicated to accelerating the UK’s push to become a net-zero economy.
Money raised from the sale of the sovereign debt will be plowed into programs underpinning the transition to a low-carbon economy, create green jobs and support efforts to tackle climate change.
These include renewable energy and clean transport initiatives deemed key to Britain meeting its goal of cutting greenhouse gas emissions to net zero by 2050.
We look to build out a green curve over the coming years
The notes, whose size, price, yield, term and structure has yet to be determined, will be offered this year through National Savings & Investments, the government-backed scheme which also offers Premium Bonds.
Rules governing how the money raised can be spent and how its impact will be reported are also unclear and may form part of tomorrow’s formal annoncement. HSBC and J.P. Morgan have been brought in to advise.
Unlike normal government bonds, Premium Bonds do not generate interest but instead offer investors the chance to win cash prizes of up to £1m. Whether the green savings bond will follow this format has yet to be finalised.
The announcement in advance of the Budget has been seen as part of the government’s attempt to enhance its green credentials ahead of the COP26 climate summit in November and capitalise on growing investor interest in assets designed to fund environmentally-friendly spending.
Sunak told the Commons it will be the first in a series of new issuances: “as we look to build out a green curve over the coming years helping to fund projects to tackle climate change... and create green jobs across this country.”
He said further details will be set out in the coming months.
While some $250 billion (£190 billion) worth of green bonds were sold globally last year, the Debt Management Office has been behind the curve amid Treasury concerns that investors would baulk at the typically lower levels of interest paid.
Germany launched its product in September, selling 6.5 billion euros (£5.8 billion) of 10-year debt. Investors seeking to bolster their green credentials accepted a return of 1 basis point lower than a conventional bond.
France and the Netherlands have also issued similar bonds with Italy announcing its first move into the market last week.
Separately tomorrow, the Chancellor will also announce the launch of three programmes that will receive funding from the government’s £1bn Net Zero Innovation Portfolio.
These will include £20m for a competition to develop floating offshore wind demonstration projects, which can be deployed in deep waters where winds are strongest. The floating offshore wind market has significant growth potential, particularly in Scotland and Wales, which could lead to the creation of new, high value, sustainable jobs.
Nearly £70m is expected for a competition to deliver first-of-a-kind long-duration energy storage prototypes that will reduce the cost of net zero by storing excess low carbon energy over longer periods.
A further £4m will go towards a biomass feedstocks programme to identify ways to increase the production of green energy crops and forest products that can be used for energy and play an important role in decarbonisation.
The green bond will be linked to the UK’s inaugural green gilt (wholesale bond), which will be issued later this year. HM Treasury will publish more detail about how proceeds from the green gilt and green savings bond will be invested and how it will report on the environmental impact.