Calls are growing to include a retail tranche in the UK’s upcoming green Gilt in a move that could also potentially provide seed capital for the new National Infrastructure Bank that was announced by Chancellor Rishi Sunak last week.
Providing capital for the planned bank could emphasise the social aspect of a green recovery by focusing on job creation. The new bank has been designed to channel billions of pounds into capital projects as part of the UK government’s "levelling up" plan to reduce regional inequality.
Including a retail tranche for the UK public would be a novel move for a green sovereign bond, as previous deals have been sold only to qualified institutional buyers. It would also help Britain show leadership in the sustainable finance space ahead of the COP26 climate meeting in Glasgow next year.
"A retail tranche for the UK's green Gilt is a good idea. The challenge is, what's the best way of doing it?” said Nick Robins, professor in practice for sustainable finance at the Grantham Research Institute on Climate Change and the Environment and an author of the Green + Gilt report.
“You could have a retail tranche of the UK's sovereign green bond. Another way of doing it would be to have a green issue of national savings," he added.
The UK's Debt Management Office said it was too early in the project to comment.
Possible use of proceeds for the green Gilt includes funding for the National Infrastructure Bank. This would ensure the bank would have a clear net zero and sustainability mandate in line with the UK’s commitment, and position the bank as an issuer of sustainable debt.
"Providing the capital base for a net zero national infrastructure bank would be a very good way of using green bond proceeds. Of course, the National Infrastructure Bank could also become a major issuer of green and social bonds in its own right like other public finance institutions, such as the EIB," Robins said.
The government’s plans to issue a green Gilt was one of a trio of measures announced this month by Sunak to position Britain as a world leader in green finance. The DMO has yet to respond formally to the Green + Gilts proposal put forward by 32 asset owners and investors with £10trn of assets under management in October, which calls for the inclusion of social as well as green projects.
Democratic digitisation?
The process for private investors to buy Gilts is currently complex, and calls are growing to digitise and streamline the process to make Gilts more available to the public to increase engagement ahead of COP26.
Retail investors that want to buy Gilts other than via the DMO at auctions currently have to access the secondary market through a stockbroker, bank or the DMO’s purchase and sale service. Computershare Investor Services operates the service and also maintains the register of Gilt holdings.
“Current processes for retail investors to buy Gilts directly are cumbersome and off-putting – we hope Treasury will make them easily accessible in a fully digital, inclusive way," said Louise Wilson of ethical direct investment platform Abundance Investment, which has structured climate bonds for local authorities that were offered to the public.
The London Stock Exchange Group is also broadly supportive of the UK’s green bond and increased retail participation, and operates the order book for retail bonds, as well as the order book for fixed income securities.
"We support the further democratisation and digitisation of markets. We certainly think that digitisation can help to improve retail access," said Shrey Kohli, head of debt capital markets and funds at LSEG.
"We have a market for retail bonds, which is well understood by UK savers, it's been utilised by large UK companies, charitable associations and housing associations previously and has a tried and tested investment model.”
Corrected story: Corrects name in paragraphs four and eight