U.K.’s Green Ambitions Trail Europe in Sustainable Bond Market


The U.K.’s late entry to the booming green debt market will leave it struggling to catch up with European peers, undermining ambitions for London to become a world leader in environmental finance.

The British government will only sell its first green asset this summer, by which time Germany will have a whole yield curve of debt for investors. Spain will also beat it to a debut, following a record-breaking entrance from Italy this month, while France is the top issuer.

“The government must make sure this isn’t a PR ‘greenwashing’ exercise for investors and consumers,” said Claire Jones, head of responsible investment at consultancy firm Lane Clark & Peacock LLP.

The green gilt sales of 15 billion pounds ($21 billion) -- about half of what France already has -- over the next year are meant to be pillarstones in Prime Minister Boris Johnson’s plan to boost the nation’s eco credentials ahead of a United Nations conference on climate change in Scotland in November. In the mean time, many investors are still in the dark about key details.

The country’s Debt Management Office did not provide clues on the timing or maturity of the initial bonds, while the Treasury won’t issue details on the framework until June. These rules could kickstart broader issuance in sterling, which so far only makes up 6% of this year’s record sales of ethical debt in Europe.

U.K.’s Green Ambitions Trail Europe in Sustainable Bond Market

Green bonds, which have to fund environmental projects, have been a fixture of Europe’s markets for years now, after Poland was the first country to sell them in 2016. Global issuance has soared to over $1 trillion as climate change moves up the policy agenda and spurs a rush by investors for environmental, social and governance assets.

For its part, the U.K. seemed in no hurry to join in -- despite being home to a host of ethically-minded funds. As recently as last year, Robert Stheeman, the head of the U.K.’s Debt Management Office, said that unless investors were prepared to pay more, issuing green bonds would be a “symbolic” step and end up costing taxpayers more than standard gilts. Since then, many countries and companies have managed to lower their financing costs using sustainable debt.

The tune changed in November when Chancellor Rishi Sunak announced plans to build a “green curve” to help encourage “sustainable financial flows and extend the U.K.’s global leadership in green finance.” Yet to do that requires the sale of several bonds of different maturities -- Germany for example already has 5-year and 10-year green bonds and will issue a 30-year in coming months.

“Our clear view is that green gilts should target longer-dated institutional demand,” said Simon Bond, a fund manager at Columbia Threadneedle Investments, who urged the government to follow existing principles set by the International Capital Market Association.

There’ll also be a U.K. green bond for retail investors. An immediate problem might be finding enough eligible projects to create a home for all that money.

Sunak’s budget statement on Wednesday offered little in the way of fresh cash for green projects. Environmental advocates were largely disappointed by the lack of spending announced to cut emissions.

“The budget was poor on specific green measures and felt almost like there was no net-zero target or declared climate emergency in the U.K.,” said Ajay Gambhir, senior research fellow at The Grantham Institute for Climate Change, Imperial College London. “This didn’t feel like a budget that was fit-for-purpose in driving an acceleration towards net-zero in any way.”

For now the focus of interested asset managers is in ensuring any bonds meet strict criteria, with the proceeds suitably ringfenced toward projects with genuine impact. That comes amid rising concern in the market about greenwashing, where the benefits may be overstated. Officials at the U.K.’s Treasury have been meeting investors to gauge their views.

“With a sovereign bond it’s very difficult to ringfence assets, but what we were pushing them toward was greater certainty over what this is going to finance,” said Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, which spoke to government officials last month. “We would be really disappointed if green bonds were announced to just refinance existing assets.”

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