UK to sell first ‘green’ bond in 2021, says Sunak

LONDON (Reuters) – Britain will sell its first “green” government bonds next year, Finance Minister Rishi Sunak said on Monday, in a bid to capitalize on growing investor interest in assets intended finance environmentally friendly expenditure.

FILE PHOTO: Britain’s Chancellor of the Exchequer Rishi Sunak leaves Downing Street, London, Britain October 14, 2020. REUTERS/John Sibley/File Photo

The green bond market has grown rapidly in recent years with around $250bn (£190bn) sold globally last year, or 3.5% of global bond issuance.

But Britain’s Debt Management Office, an arm of the Department of Finance, has been cautious about green bonds, fearing investors will demand a higher yield for bonds issued in smaller volumes and less. liquids.

Sunak’s announcement marks a change of course as Britain prepares to host a UN climate conference next year. It has also issued a record £373bn of bonds since April to fund its response to the COVID-19 pandemic.

“This will be the first in a series of new shows as we seek to create a green curve over the next few years by helping to fund climate change projects…and creating green jobs across the country” , Sunak told parliament.

He made the announcement as part of a speech on the future of UK finance, including how financial regulation would diverge from that of the European Union after Brexit.

Germany, the benchmark issuer of eurozone government debt, entered the green bond market for the first time in September, selling 6.5bn euros (£5.8bn) of 10-year debt. It foresees a five-year bond for November.

Investors looking to boost their green credentials accepted a yield 1 basis point lower than a conventional bond that the German government sold at the same time.

France and the Netherlands have also issued similar bonds.

The sector received a boost in September when European Commission President Ursula von der Leyen said 30% of the EU’s €750 billion coronavirus recovery program should be funded by bonds green.

The Bank of England welcomed Sunak’s announcement and the government’s decision to require large companies to report from 2025 on how they would be financially affected by climate change.

Sunak said Britain would be the first country in the Group of 20 to follow the recommendation of the Financial Stability Board’s Basel-based task force on climate-related financial disclosures.

The BoE itself will conduct its first climate change stress test of financial institutions in June 2021, which Governor Andrew Bailey said would encourage banks and insurers to assess whether they have enough capital to meet the challenges. potentially existential threats to certain investments.

The government has also said it will establish clear rules on what is considered a “green” investment, based on an EU framework with possible UK-specific adjustments.

Additional reporting by Andy Bruce; Editing by Paul Simao

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