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Rishi Sunak announced the introduction of "green" savings bonds in the Budget, which would enable investors to invest in projects aimed at speeding up the UK's transition to a net-zero economy.
The proceeds from the selling of the sovereign debt would be used to fund programmes that will help the country move to a low-carbon economy, provide green jobs, and combat climate change.
Renewable energy and sustainable transportation projects are among those considered critical to Britain's aim of achieving net zero greenhouse gas emissions by 2050.
Describing the bonds as “world-leading” the Chancellor said it would: “Give all UK savers the chance to support green projects.”
The notes, whose size, price, yield, term, and structure are still being calculated, will be available this year through National Savings & Investments, a government-backed scheme that also offers Premium Bonds.
The rules concerning how the money collected will be invested and how its effects will be reported are still unknown, although they could be included in tomorrow's formal announcement. HSBC and JP Morgan have been enlisted as consultants.
Premium Bonds, unlike traditional government bonds, do not pay interest but rather offer investors the opportunity to win cash prizes of up to £1 million. It is also unclear if the green savings bond will follow this format.
The announcement is seen as one of the government's effort to boost its green credentials ahead of the COP26 climate summit in November, as well as capitalize on increasing investor interest in assets intended to finance environmentally sustainable investment.
Laith Khalaf, financial analyst at AJ Bell said: “The new NS&I Green bonds are likely to sell like hotcakes, seeing as environmental concerns are really beginning to take hold with savers and investors.
“The product is expected to land in summer, hopefully enough time for NS&I to sort out the administration problems it has encountered of late, before it’s hit with a fresh wave of demand.
“The interest rate paid on the bond will be a key determinant of its success. Too low, and it won’t put bums on seats, too high and there are inevitably questions about costs to the taxpayer.”
Despite the fact that more than $250 billion (£190 billion) of green bonds were sold worldwide last year, the Debt Management Office has remained behind the curve due to Treasury fears that investors will recoil at the typically lower interest rates.
In September, Germany released its product, selling 6.5 billion euros (£5.8 billion) of 10-year debt. Investors who wanted to boost their green credentials were willing to accept a return that was 1 basis point lower than a traditional bond.
Similar bonds have been released in France and the Netherlands, with Italy making its first step into the market last week.
Kate Elliot, Deputy head of ethical, sustainable and impact research at Rathbone Greenbank Investments said: “Green sovereign bonds are a critical step towards net zero, but, the devil will be in the details.
“Cast the definition of ‘green’ too wide and it will undermine investor confidence and dilute the real world positive impact that could be achieved.
“Our society and economy will see fundamental changes as a result of the transition to net zero, and so initiatives that democratise access to green investment and directly involve individuals, like the new Green Retail NS&I product, are key.”
The Chancellor’s green push was not universally was seen by some industry experts as a missed opportunity.
Adam Bond, CEO of hydrogen fuel cell tech firm AFC Energy, said: “It’s unfortunate that an opportunity was missed to catalyse further investment into alternative fuel sources by the Chancellor implementing a fuel duty freeze.
“We believe he could have gone further in considering fuel duty changes; this includes penalising the use of red diesel in industry, which the Chancellor has previously admitted distorts competition and acts as a block on green alternatives.” Crispin Truman, chief executive of countryside charity CPRE, said: “The Chancellor has also missed a golden opportunity to prove that the government really means business when it talks about the UK being a genuine world leader in tackling the climate emergency.
“What we need is for the government to help create green and sustainable jobs up and down the country that help real people, while also making the UK economy greener.
“The Chancellor mentioned ‘green growth’, ‘green industries’ and ’green projects’ nine times but there’s nothing green about the jobs created by a new coal mine in Cumbria.
“He should be stimulating jobs in areas like Cumbria with renewable energy and energy efficiency, rather than through a coal mine that will be disastrous for carbon emissions and disastrous for our international reputation on climate in equal measure. All in all, a disappointing Budget for climate, communities and the countryside.”
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