Yahoo Finance Sunak raises £10bn in green gilt launch
The Treasury has raised £10bn with its first green gilt, boosting the City of London's status as a home for environmentally-friendly investing.
The debt issuance was 10-times oversubscribed as keen investors offered £100bn to the Government.
Separately, in another positive sign for the Square Mile, lenders are set to win a reprieve from the bank surcharge in the upcoming autumn Budget. The tax was introduced in 2011 to stop banks benefitting from cuts to corporation tax. But now corporation tax is due to leap from 19pc to 25pc in 2023, it is understood that the Treasury is looking at slashing the surcharge, which currently stands at 8pc and raises more than £1bn per year.
Rishi Sunak, the Chancellor, also hopes to issue £15bn of green gilts this financial year to raise money for environmental projects including clean transport, hydrogen generation and lower-emission agriculture.
The new bond, which matures in 2033, has an interest rate of 0.87pc and strong demand indicates the Government could end up benefitting from lower borrowing costs in green gilts than in conventional instruments.
Green bonds are in high demand as investors want their money to go to projects which will help the world economy on its way to lower emissions, with individuals, pension funds and businesses keen to buy into the "net zero" targets.
"Green finance is vital in helping us to tackle the environmental challenges we face, and the launch of our first green bond is a signal that the UK continues to be a world leader in this area," said Mr Sunak.
"This funding will be used to finance vital green government projects across the country, including things like clean transportation, renewable energy and preserving our natural environment. In helping us to build back better and greener, it will also help to create jobs as we transition to net zero."
Other governments including those of Germany, France and Ireland have already issued green bonds, but the UK hopes its status as a global financial capital means it can become a centre for the new trade.
A larger stock of green bonds from governments is expected to help underpin the new market by setting standards which companies and investors can follow, as well as offering a low-risk investment which sets a base level for market pricing.
Individual savers will also be able to invest via a new NS&I green savings product.
Investors welcomed the chance to put money into green projects with the security of the state behind it.
"We congratulate the Debt Management Office on the successful introduction of a green gilt into the UK gilt market and expect future issuance of green gilts as the UK looks to expand the scope of maturities available to investors seeking greener investments," said Matthew Amis at Aberdeen Standard Investments.
"We are encouraged by the creation of a separate General Account by HM Treasury where the proceeds will be held and tracked. Information contained with the Green Register also allows investors to track expenditure towards eligible investments."
Keitg Balmer at BMO Global Asset Management said the bond "sounds like a good start" but is merely "a drop in the ocean" compared with the challenges posed by climate change and the €250bn of green bonds planned by the EU.
The Bank of England has said the green gilt will be eligible for purchases under the quantitative easing scheme, which is buying £3.4bn of bonds each week.
It means investors snapping up the new bonds have a guaranteed buyer should they wish to sell them on, which supports the market and gives confidence in the instruments.
However, this support is due to drop away by the end of the year as the Bank is not expected to extend its QE programme beyond the current £895bn target.
Depending on the pace of the economic recovery, eventually the central bank could end up selling bonds, potentially depressing prices and raising interest rates in the gilt market, including for the new green bonds.
