On the go: River and Mercantile has announced its participation in the government’s inaugural green gilts issuance.
The inaugural issuance of gilts known as ‘green UK government bonds’ raised £10bn on Tuesday.
Billed as the largest inaugural issuance by any sovereign, and the largest ever order book for a sovereign green transaction, the green gilts are intended to raise money for the government’s climate initiatives, such as zero-emissions buses, offshore wind, and schemes to decarbonise homes.
A second issuance will follow later in the year, raising a minimum of £15bn. Green gilts are sold to investors and provide a fixed rate of return until their expiry, with the inaugural gilts maturing in July 2023.
River and Mercantile was able to participate in the issuance by swapping out non-green gilts of a similar maturity, while the company only considered a switch in circumstances where the reduction in yield of green versus non-green gilts, known as the ‘greenium’, was minimal at the total portfolio level.
Mark Davies, managing director of derivatives at River and Mercantile, said: “As the manager of pension schemes’ liability hedges, we believe that green gilts offer pension schemes a potentially low-cost and simple governance approach to demonstrate a contribution towards meeting the Paris Agreement, as we know they will be directly invested into green projects.”
Ronan O’Riordan, head of business development at River and Mercantile Solutions, added: “Trustees should consider how green gilts might fit in with their schemes’ investment objectives, as well as their environmental, social and governance objectives and beliefs.
“Large pension schemes need to report on climate risks from 2021, so trustees may consider that an investment in green gilts would fit well with the management of their climate risks.”
He continued: “It is a fantastic development for UK pension schemes to now be able to reflect their ESG beliefs in their liability hedging portfolios and we want to continue to work with our clients on ESG.”
