On the go: The second issuance of the government’s green gilts is expected on October 18. While the first issuance was significantly oversubscribed, concerns about the “greenium” have deterred some pension schemes from investing.
Pensions Expert reported last month on the inaugural issuance of green UK government bonds, which raised £10bn.
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-emission buses, offshore wind, and schemes to decarbonise homes.
The second issuance is expected to raise a minimum of £15bn.
Green gilts are sold to investors and provide a fixed rate of return until their expiry. The first issuance was for gilts with an expiry date of July 2023, but the second issuance is for 32-year gilts, maturing in July 2053.
Penny Cochrane, senior investment research consultant at Hymans Robertson, told Pensions Expert: “At over 10 times oversubscribed, the first green gilt drew record demand (for both green sovereigns and conventional gilt issuance) and we expect similar levels of demand for the second green gilt issuance.
“Foreign investor demand was significantly increased for the green gilt over typical gilt issuance, although we expect this to decrease slightly given the longer maturity date of the upcoming issuance.
“Flows into [environmental, social and governance] funds are increasing, so we expect this to support continued demand and the greenium, similar to what we saw with the first issuance. Two of the largest pension schemes [the BT Pension Scheme and the Universities Superannuation Scheme] did not invest due to the greenium/pricing,” she continued.
“However, some asset managers do plan on investing in green gilts where appropriate for [liability-driven investment] mandates,” she said.
