Update 1: UK to issue first sovereign green bond next year

5 min read
Steve Slater, Tessa Walsh

The UK will issue its first sovereign green bond next year as part of a package intended to shift the finance industry towards helping cut greenhouse gas emissions, Chancellor of the Exchequer Rishi Sunak said.

Such a deal will represent a significant change of tack for the UK with both the Treasury and the Debt Management Office thought to be lukewarm on green Gilts – at least until recently.

“To meet growing investor demand, the UK will, subject to market conditions, issue our first ever sovereign green bond next year,” Sunak said.

Bankers expect the UK to issue in in the first half of 2021, after the work has been completed to identify expenditure targets, and establish monitoring and impact reporting. A second-party opinion provider will also need to be appointed.

"I think realistically it will probably be more the end of the first quarter or the second quarter," said Caroline Haas, head of sustainable finance for financial institutions at NatWest.

Sunak said that the UK intends to follow up with a series of further transactions to meet growing investor demand for the instruments, after coming under increasing pressure from investors to issue.

“This will be the first in a series of new issuances as we look to build out the green curve over the coming years, helping to fund projects to tackle climate change, finance much-needed infrastructure investment and create green jobs across this country,” Sunak said.

Bankers said that this indicates that the UK will follow a similar approach to Germany’s green bund programme, as opposed to France’s approach of issuing a series of green OATs at the same maturity. The UK seems unlikely, though, to copy Germany's twin-bond model of issuing matching green and conventional bonds with identical coupons and maturities.

"The DMO have said they are looking to build out green curve over the coming years, so that means there will be a series of new issuances which will follow more the German green bund model, versus the French green OAT model," Haas said.

Investors such as Columbia Threadneedle Investments and the Green Finance Institute have been calling for the UK to issue green Gilts since early last year.

“I can see green Gilts underpin economic recovery and level up infrastructure spending across the country,” said Simon Bond, a director of responsible investment portfolio management at Columbia Threadneedle Investments.


The UK will join 16 other countries that have already issued green sovereign bonds, including Germany, France and Sweden. The money raised is typically used to finance low-carbon infrastructure projects.

"The UK is quickly catching up with other countries that have already started to build a social and/or green yield curve, including the EU itself,” said Andreas Billmeier, a sovereign research analyst at Western Asset Management.

The proposed green Gilt issuance was among several measures for the financial industry outlined by Sunak aimed at helping the UK meet its target of bringing all greenhouse gas emissions to net zero by 2050.

Britain will make it mandatory for many banks, insurers and other companies to meet requirements under the Task Force on Climate-related Financial Disclosures by 2025, which Sunak said goes beyond the "comply or explain" approach.

He said the UK will also implement a green taxonomy – a framework of what has to be met for activities to be defined as green – to improve understanding of the impact of companies’ activities and investments on the environment. The European Union issued a detailed green taxonomy this year, which is expected to become the global standard, and the UK taxonomy will take the scientific metrics used by the EU as its basis.

Sunak wants to position the UK as a leading green finance hub, as his measures were part of a series of plans for UK financial services after Britain leaves the EU.

"We are starting a new chapter in the history of financial services and renewing the UK’s position as the world’s pre-eminent financial centre," Sunak said. "Our plans will ensure the UK moves forward as an open, attractive and well-regulated market, and continues to lead the world in pioneering new technologies and shifting finance towards a net-zero future."


The UK’s green Gilt was welcomed by banks and investors as a precursor to more issuance as the UK focuses on a green recovery and initiatives to tie in with the COP meeting in November 2021.

Interest for sterling green bonds is high despite Brexit, and although a significant amount of demand will come from the UK investor base, the deal is expected to attract international investors.

"Having the UK issue a green Gilt is incredibly supportive for any kind of related initiative by any type of issuer and it encourages more market participants to enter this market from the issuer side and the investor side. It obviously also comes in line with the pension stewardship reforms that will would like to direct funds to ESG assets, such as green Gilts,” Haas said.