• Sustainability
    • Green Banking
    • General Sustainability

How do the capital markets support the UK's Green Industrial Revolution?

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Find out how we helped finance the UK’s Green Industrial Revolution with the world’s biggest green bond.

The UK, host of this year’s COP26 UN Climate Conference, launched an unprecedented GBP10 billion first sovereign green bond (“green gilt”) in September of this year. The 12-year bond was the largest inaugural green bond offering in history and attracted a record level of investor demand. This offering, combined with a second £6 billion launch of a new 32-year bond, have together created a major new market in green sterling assets.

Rather than costing taxpayers more, the UK’s debut green issuance confirmed that surging demand for green assets is helping borrowers save money. ”The new bond, due to mature in July 2033, priced at a yield of 0.87 per cent. The slightly higher price that investors were willing to pay for the transaction meant this figure was approximately 0.025 percentage points lower than the expected price for a typical conventional gilt. This ‘greenium' implies a saving of GBP28 million for the Treasury over the life of the bond, and is the largest seen so far for a sovereign green bond”, said Asif Sherani, head of SSA Debt Capital Markets at HSBC, who worked on the deal.

Green bonds channel funds from investors towards projects with clear environmental benefits. For countries with easy access to the capital markets, the concept has at times been seen as largely symbolic, but this is changing as governments look for ways to ramp up spending on low-carbon technologies to meet their emissions targets.

The COP26 meetings are an important backdrop: world leaders are under pressure to raise their ambitions, and access to finance will be a key consideration.

Proceeds from the deal will be earmarked from the Treasury’s general budget for a specific list of projects – including green buses, offshore wind and carbon capture – in line with the government’s Ten Point Plan for a Green Industrial Revolution.

The UK has also committed to report on the social impact of its investments, emphasising the positive impact of climate initiatives through job creation and other initiatives, such as supporting development in the north of England. This raises the bar for impact reporting and fits well with the global focus on social benefits in the wake of the Covid-19 pandemic.

“It is now beyond doubt that green bonds can deliver value for money for the British taxpayer,” said Sir Robert Stheeman, chief executive of the UK Debt Management Office. “The transition to net zero is also an opportunity to invest in a fairer and more inclusive society.”

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