The UK’s Inaugural Green Gilt Issue Phiroza Katrak

Having legislated to achieving net zero carbon emissions by 2050, becoming the first major economy to do so, and as host to the important COP26 climate summit this November in Glasgow, the UK government this week took an important step towards delivering its sustainable finance ambition and agenda.

On 21st September £10 billion was raised from the issuance of the first green gilt, a 12-year bond maturing on 31st July 2033. The yield was around 0.9%, close to that of existing gilts of similar maturity.  The issuance was heavily over-subscribed, attracting over £100bn of demand from investors.

A second issuance is expected later in the year. National Savings and Insurance will also be announcing standalone retail green savings bonds.

For any ‘green’ finance raised, investors want to know about the use of its proceeds as well as transparent and verifiable reporting on the allocation and management of the funds and their impact.

As outlined in the government’s Green Financing Framework published, the proceeds raised from green gilts will be used to finance expenditure in projects related to climate change adaptation, renewable energy, energy efficiency, pollution prevention and control, living and natural resources (e.g. protecting/restoring diversity, sustainable use and protection of water and marine resources) and clean transportation (e.g. zero emissions buses). These will align with nine of the United Nations’ Sustainable Development Goals. Although nuclear power continues to be part of the UK’s low-carbon energy mix, it has been excluded from the list of eligible financing. 

HM Treasury intends to publish an allocation report on its green expenditures on an annual basis and an impact report setting out the environmental impacts and social benefits at least biennially which will be made available on the government’s Green Financing website. This reporting will be subject to external verification by an authorised independent entity.