On the go: The UK government is to issue its first green sovereign bond in 2021, alongside tough new measures on sustainability reporting for companies.
The bonds will be used to finance new sustainable projects, and potentially offer defined benefit pension schemes the chance to match liabilities while mitigating environmental, social and governance concerns.
Announcing the new issuance on Monday, the Treasury stated that, subject to market conditions, further green gilts will be issued in following years, helping the country meet its ‘net-zero’ pledge by 2050.
The Treasury also announced plans to enforce mandatory reporting in line with the Task Force on Climate-Related Financial Disclosures across the economy by 2025. Pension schemes are already set to have to analyse their own portfolios against this standard, but the new announcement targets greater clarity for investors over the risks run by individual businesses.
A roadmap has now been published for progress on the TCFD reforms, with many planned to be in place by 2023. The UK will also publish a green taxonomy, defining what business practices can be designated as sustainable, based on the one published by the EU.
Chancellor of the exchequer Rishi Sunak said: “We are starting a new chapter in the history of financial services and renewing the UK’s position as the world’s pre-eminent financial centre. By taking as many equivalence decisions as we can in the absence of clarity from the EU, we’re doing what’s right for the UK and providing firms with certainty and stability.
“Our plans will ensure the UK moves forward as an open, attractive and well-regulated market, and continues to lead the world in pioneering new technologies and shifting finance towards a net-zero future.”
Investors sounded a positive note on the prospect of green gilts in pension portfolios. Joshua Kendall, head of responsible investment research and stewardship at Insight Investment, said: “We support the UK Treasury’s commitment to issue green gilts. Ahead of the COP 26 conference next year the UK is showing important leadership with this announcement.
“Pension fund investors, cognisant of their ESG responsibilities, have already expressed strong interest in green gilts and we expect the 2021 issuance to be well-received subject to suitable issue format.”
Mr Kendall urged the government to collaborate with the financial sector in order to achieve its targets: “The gold standard for green issuance is a bond that also contributes to a wide, long-term sustainability strategy.
“The Treasury will have to think about aligning with the best practice standards already in place by several European nations that have issued green sovereign debt. This includes transparency on use of proceeds, annual disclosure commitments, and short and long-term implementation targets.”
