Why is the UK launching its first green bond in 2021?

Question

Accepted Answer

The UK is launching its first green government bond in 2021 to build a “green curve” that can fund climate-change projects and green jobs, as investor interest in green assets grows ahead of a UN climate conference.

Finance minister Rishi Sunak said Britain will sell its first “green” government bond next year as a change in approach, aiming to capitalise on growing investor interest in assets designed to fund environmentally-friendly spending. He linked the plan to Britain preparing to host a United Nations climate conference next year, and said the issuance would be the first in a series to build out a green curve over the coming years. Sunak also said the bond programme is intended to help fund projects to tackle climate change and create green jobs across the country.
The government framed the move as a shift to a new issuance plan
Sunak told parliament the first green bond would be followed by additional issuances as Britain builds out a “green curve” over the coming years. The announcement was made as part of a wider speech on the future of British finance, including how financial regulation would diverge from the European Union after Brexit. This context placed the bond launch within broader changes to how the UK regulates and structures finance.
It comes as green bonds attract more global and European funding
The launch also reflects how the green bond market has expanded rapidly in recent years, with about US$250 billion sold globally last year, representing 3.5 per cent of global bond issuance. The UK is not acting alone: Germany, France and the Netherlands have all issued similar green bonds, and the European Commission said it plans to fund 30 per cent of its €750 billion coronavirus recovery programme via green bonds. Sunak’s comments pointed to investor demand for assets tied to environmental objectives.
Earlier caution from the Debt Management Office is part of the backdrop
The UK’s Debt Management Office had previously been cautious about green bonds, citing concerns that investors might demand higher returns because the bonds could be issued in smaller volumes and be less liquid. Sunak’s announcement is presented as a change of tack from that earlier caution. At the same time, the broader European experience included examples such as Germany issuing €6.5 billion of 10-year green debt in September and investors accepting a return 1 basis point lower than a conventional bond sold at the same time.
The plan is paired with climate-related disclosure and “green” rules
The Bank of England welcomed the announcement, alongside a government decision to require large businesses to make statements from 2025 about how they would be financially affected by climate change. The UK also said it would establish clear rules on what counts as “green” investment, based on an EU framework with possible UK-specific adjustments. In addition, the BoE will run its first climate change stress test of financial institutions in June 2021, with Governor Andrew Bailey saying it would encourage banks and insurers to assess whether they had enough capital to deal with potentially existential threats to some investments.

Reading history

Hide →

This history is cleared when the page is closed.

Why is the UK launching its first green bond in 2021?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends