In November 2020, the Chancellor of the Exchequer, my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), announced plans for the UK to issue its inaugural sovereign green bond (or “Green Gilt”). Green financing products like these are a form of Government borrowing to finance projects with clearly defined environmental benefits.
Since then, the Government have set out their intention to issue a series of green gilts to meet growing investor demand. Budget 2021 confirmed the following ambitious commitments, including that:
the UK will conduct at least two green gilt issuances in 2021;
Green gilt issuances in the 2021-22 financial year will total a minimum of £15 billion;
the UK will also issue retail green savings bonds via NS&I, the first standalone retail product tied to a sovereign green bond; and
in another first for comparable sovereign issuers, the UK will report on social co-benefits of expenditures financed by the green gilt and retail green savings bonds, such as job creation, access to affordable infrastructure and socioeconomic advancement.
Green financing will be a multi-year programme, and HM Treasury will announce future years’ green financing targets as part of its usual approach to debt management.
In May 2021, the UK Debt Management Office (DMO) announced that the first green gilt will be issued in September 2021, subject to demand and market conditions.
NS&I today announced that green savings bonds will go on sale later in the year, with full details available on the NS&I website.
Ahead of this, HM Treasury and the DMO yesterday published the UK Government green financing framework. This document sets out the Government’s ambitious climate and environmental agenda and their vision for enhancing the UK’s leadership as the world’s preeminent green financial centre. The framework also details how the proceeds from the green gilt and retail green savings bonds will finance expenditures to help tackle climate change, biodiversity loss, and other environmental challenges, while creating green jobs across the UK.
As part of this, the framework lists the six types of green expenditures that will be financed across the UK by the green gilt and retail green savings bonds:
Pollution prevention and control
Living and natural resources
Climate change adaptation.
The framework also stipulates that funds raised from each offering must be allocated to Government expenditures occurring no earlier than 12 months before and no later than two budget years after that offering. At least 50% of funds will be allocated to current and future expenditure rather than refinancing past expenditures, matching the strongest commitments of other major sovereigns.
Finally, this document commits the Government to annual allocation reporting and at least biennial reporting of metrics on environmental impacts and social co-benefits, ensuring transparency for retail and institutional investors and other interested parties.
Two independent reports assessing the framework and the eligible Government expenditure were published alongside the framework on 30 June 2021:
In line with market best practice, V.E, part of Moody’s ESG Solutions, has provided a second party opinion on the sustainability credentials of the Government of the United Kingdom’s green financing framework, which asses the alignment of the framework with the green bond principles 2021 published by the International Capital Market Association. V.E expressed a “robust” level of assurance on the contribution of the UK’s framework to sustainable development, which is the same positive assessment achieved by major sovereign issuers. V.E also assessed the UK’s environmental, social and governance performance as “advanced”, the highest level on V.E’s four-point scale;
the Carbon Trust has produced a pre-issuance impact report on the UK Government green financing programme, which reviews the Government’s intended allocation of proceeds under the framework and the proposed impact metrics. They found that the allocations “align sensibly” with the Climate Change Committee’s recommended climate targets for the UK (known as its “Sixth Carbon Budget”) and they are “confident that the programme will contribute to achieving net zero by 2050”. This is the first report of its kind among sovereign issuers and provides additional evidence of the coherence of the Government’s green financing programme with its wider environmental agenda.
Copies of the framework, second party opinion, and pre-issuance impact assessment have been placed in the Libraries of both Houses and are published on www.gov. uk/government/publications/uk-government-green-financing. Further information can also be found on the DMO and NS&I websites.