When he appeared before the UN last week, Prime Minister Boris Johnson denounced the Muppets character Kermit the Frog on two points: being rude to Miss Piggy and his insistence that “it is not easy to be green “.
Governments around the world certainly have their work cut out for leaving the planet in better shape through measures such as renewables, increasing production of electric vehicles, and protecting forests from deforestation.
The day before Johnson’s UN speech, the UK government revealed it had raised Â£ 10 billion by selling ‘green gilts’, a record amount for a sovereign green bond.
The bond sale is part of the UK’s plan to become a net-zero country by 2050, a program that also includes investing in renewable technologies, creating green jobs and protecting the environment. British biodiversity.
Going green: Prime Minister Boris Johnson said this week that Muppets character Kermit the Frog (pictured with Miss Piggy) was wrong to say: ‘It’s not easy being green’
Will the gilts help the UK decarbonise fast enough and prove to be a boon for investors? Well, the Climate Change Committee estimates Britain needs to spend Â£ 50 billion a year on low-carbon investments by 2030 to meet its goal of net zero.
In addition to other private and public investment, Â£ 10bn from the sale of green gilts is certainly bringing the country closer to its funding targets. Fund managers have noticed how strong investors’ appetite for bonds is.
“We were not surprised by the high level of demand, but this is clearly an exceptional result for the UK government,” said Quentin Fitzsimmons, portfolio manager of the T. Rowe Price Global Aggregate Bond Fund .
âThe new bond appeared to us to be cheap relative to the curve and attractively priced compared to recent similar green sovereign issues in Germany and Ireland, for example, where we have seen these bonds trading at yields below. those of adjacent bonds on the yield curve. “
Fundraising: UK government revealed it raised Â£ 10bn by selling ‘green gilts’ last week, a record amount for a sovereign green bond
The UK government also plans to raise an additional Â£ 5bn later this year via another green gilts issue and to introduce the world’s first green retail product: National Savings & Investments Green Savings Bonds. (NS&I).
As stated in its green finance framework released in June, it intends to direct the money raised to projects such as offshore wind, energy efficiency and household decarbonization.
David Katimbo-Mugwanya, senior fund manager at Edentree, believes investors should support green gilts, given the âsheer amount of fundingâ governments need to make the transition on time and meet their climate goals.
He adds: âGovernments, with their ability to raise such large amounts of funding and deploy revenue at scale, will play a central role.
Some environmentalists might be disappointed to read that none of the money raised will go to nuclear power, a low-carbon form of energy that has helped countries like France and Sweden significantly reduce their emissions.
For a country with one of the highest per capita emissions levels in Europe, the UK has also lagged relatively behind in the part on green bonds. Eight other countries, including Germany and Italy, have already made their own sales.
But now that he has done so, how can he ensure that the money raised does not crowd out private investment and lead to unintended damaging consequences?
The Treasury intends to use the gilt issuance to create what’s called a green yield curve, which will show the bond’s financial performance relative to its maturity.
“The challenge,” says Fitzsimmons, “will be whether preferences mean unsecured green issues become harder to attract investors and more expensive.”
Clean spending: UK government intends to use money raised from ‘green gilts’ for projects such as offshore wind, energy efficiency and household decarbonization
But the issuance of green bonds can only be effective if governments and private companies sharply reduce their issuance of more environmentally damaging projects with ordinary bonds.
Tariq Fancy, former chief information officer for sustainable investing at Blackrock, pointed out in a recent blog post that green bonds do not by themselves prevent companies and governments from funding less environmentally friendly activities. ‘environment.
“It’s not entirely clear if they create a lot of positive environmental impact that wouldn’t have happened otherwise, as most companies have a few qualifying green initiatives that they can raise green bonds to fund specifically without. increase or change their overall plans. ”
Regardless of his concerns, green bonds have become a trillion dollar market, with big companies like Apple, Pepsi, and Unilever jumping into the action.
These three companies do have a significant carbon footprint, however, which could lead them to possible accusations of greenwashing, regardless of the commitments they have made to decarbonize.
However, some important studies claim that green bonds can help companies decarbonise and even improve their bottom line.
One by Caroline Flammer at Boston University analyzed 217 green bonds issued by public companies between 2013 and 2017 to determine their effect and found several positive results.
The companies that issued these bonds saw their financial and environmental performance improved; they created more green products and services, they generated more interest from long-term and green investors, and they saw their stock prices rise.
Another study by the EU’s Joint Research Center found that issuers of green bonds experienced âsteeper, more significant and lastingâ emissions cuts than if they issued conventional bonds.
But even if the authors of these studies are right and green bonds prove to be very effective, they alone will not solve the climate crisis plaguing the planet.
Public and private organizations must work very hard to limit the environmental damage they cause. The UK government cannot hope to have the full confidence of environmental activists if it does not ban, for example, oil and gas licenses and allow banks to finance fossil fuel projects abroad.
As Laith Khalaf, Head of Investment Analysis at AJ Bell, said: âThese green products offer at least one environmentally friendly option for savers and investors who want to contribute and would like their money to be used. wisely. . ‘
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