The basic premise is a good one.
In a bid, ultimately, to save our own skin, and that of everything else on Earth, we invest our money in the government, which then invests in projects that will help transition our society from an environmentally destructive one to one that, among other things, delivers net-zero emissions by 2050.
In return, we get a step closer to the personal financial resilience that the pandemic has demonstrated we desperately need. Plus, as we know, 50 per cent of the population have a few more pounds sloshing about right now.
Enter the NS&I Green Savings Bond (or GSB to its friends), the details of which have finally been released after the chancellor, Rishi Sunak, announced their introduction back in the spring Budget.
But is it actually going to do any good – for our pockets or the environment?
Available at a fixed rate over a three-year term, with a minimum investment of £100 and a maximum of £100,000 for those aged 16 and over, GSBs will help finance the government’s green spending projects – designed to tackle climate change and make the environment greener and more sustainable – to the tune, the Treasury anticipates, of £15bn.
These projects will include making transport greener, using renewable energy over fossil fuels, preventing pollution, using energy more efficiently, protecting natural resources and adapting to a changing climate.
But experts warn that the interest rate will be critical – a detail that has yet to be revealed.
“The new Green Savings Bond will be a welcome addition to the cash market, offering savers a green home for their money that’s secure and transparent. But the rub is that to offer a market-leading rate, the government would need to pay significantly more interest than its normal cost of borrowing,” warns Laith Khalaf, financial analyst at AJ Bell.
“The Green Savings Bond will run on a three-year term, over which period the government can currently borrow money at just 0.2 per cent per annum. The best three-year bond currently available on the market pays 1.3 per cent a year, so if the Treasury wants the product to be a market leader, at the moment it would need to offer at least this level of interest.”
“On the £15bn of funding envisaged, that would mean a cost of £165m to the taxpayer each year above simply tapping up the gilt market,” Khalaf adds.
“Even at the best of times, that would seem like a sizeable sum to be saddling the exchequer with, and clearly government finances are under extreme pressure after the cost of the pandemic response.
“The Treasury may therefore opt for a lower rate, and rely on the green credentials of the bond and the financial security provided by NS&I to do the heavy lifting.”
The lower they go though, the higher the chances of the product being a flop, particularly as those already invested in ESG (environmental, social and governance) funds have enjoyed strong performances recently.
And unfortunately, the Treasury, and savers, have form on such matters. When NS&I slashed the interest rate on its most subscribed accounts last winter, it completely overcooked it, resulting in great swathes of savers voting with their feet.
Some of its products currently pay just 0.01 per cent interest.
“Bonds lend the government money for today’s expenditure, paid for by future taxpayers,” says Andy Mayer, chief operating officer at free-market think tank the Institute of Economic Affairs.
“The devil is in the detail of what is being paid for and whether it’s worth the money.
“The government’s record is poor when it comes to picking winners, and particularly green technology. It would be better off leaving these things to the market.”
There’s no doubt that appetite for green investments is strong and growing fast. This week, the insurer Royal London reported that more than half of the UK public now wants their pension to be invested responsibly in order to tackle climate change, and more than 3 million people currently paying into a pension are investing responsibly.
The figures illustrate a fundamental and rapid shift in investor attitude and awareness. For many years, the carbon footprint and other environmental effects of pension investments have been regularly overlooked when making changes towards a more sustainable personal and financial life.
However, accusations of “greenwashing” – the inaccurate pitching of a financial or other product or service as environmentally sound – are rife. And if consumers who are committed to reducing the impact of their financial portfolio invest in products that don’t deliver, the UK’s national environmental commitments are at risk.
Last month, the Financial Conduct Authority published new proposals on climate-related disclosure rules that are designed to help make sure the right information on climate-related risks and opportunities is available along the investment chain – from companies in the real economy, and financial services firms, to clients and consumers.
This should help encourage investment in more sustainable projects and activities, consistent with the chancellor’s demand that the regulator “have regard” for the government’s aim to have a net-zero economy by 2050.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The climate change challenge affects the whole of society. It is vital that the financial services sector plays a leading role in addressing this challenge. Managing the risks of climate change and transitioning to a cleaner and less carbon-intensive economy will require high-quality information on how climate-related risks and opportunities are being managed throughout the investment chain.
“However, climate-related disclosures do not yet meet investors’ and market participants’ needs. The new rules will help markets, investors, and ultimately consumers, better understand the impact of climate change and make more informed decisions.”