Green bonds get the green light

News in Rishi’s Spring Budget of a new ‘green’ savings bond to be offered to retail investors through NS&I in the summer of this year emerged.

What is the green bond?

The bond will be issued by the treasury backed NS&I to help raise funds for environmentally friendly projects such as renewable energy and ‘clean’ transportation.

The government, through NS&I will pay a fixed rate of interest (yet to be disclosed) in return for use of funds deposited in that time to help finance these projects. NS&I are backed by HM Treasury who guarantee 100% of everything invested, not just the £85,000 currently covered by the Financial Services Compensation Scheme (FSCS), but it is not yet clear if there will be deposit limits in place and if so what these may be.

Whilst details on how much the government hopes to raise through this have not been disclosed, it is clear that the government are putting green investment at the centre of post Covid economic recovery to meet their zero net greenhouse gas emissions target by 2050.

The Treasury says this bond will “give savers the opportunity to take part in the collective effort to tackle climate change.”

How do I understand what is ‘green’ and what is not?

There is no clear and defined answer to this as it is dependent on the individuals view. For example, Royal Dutch Shell may be viewed negatively by some in terms of ‘green’ investing as it produces oil, however given its commitment to tackling climate change and investment into clean energy, another person may view this in a positively in terms of ‘green’ investing.

There is a lot of terminology thrown about the industry regarding ‘green’ investing. So, to give some clarity on this issue I will use the most recent phrase of Environmental, Social and (corporate) Governance, or ESG for short as this can apply to all investments.

These are the three main factors when measuring the sustainability of an investment in a business or company and can be defined briefly below:

Environmental – What impact does the company have on the environment?

Social – The social impact of the company – both internal and in the wider community.

Governance – How does a company’s management drive change positively?

These factors are fast becoming a large part of how companies are viewed as investors are not only considering what profit the companies are making, but how they are making it and what impact this has.

How can I help to make a difference?

The rapid and growing awareness of climate change in addition to ways in which individuals can invest in this manner places a great deal of power with investors in effecting change.

Whilst you can use this opportunity to apply for green bonds, you may already have the ability to invest in a sustainable or ESG manner through your existing investments – whether it may be through your pension, ISA or other forms of investments.

Therefore, if sustainability and wanting to tackle a particular cause such as climate change is important to you and you would like either part of all of your funds invested in areas which adhere to these factors, then it is important that you review any policies you have as soon as possible to see what the sustainable/ESG investment offering is as you may want to create a more specialised portfolio to reflect your views.

At Kreston Reeves Financial Planning it is important that as advisers we know your preferences in order that a portfolio of investments can be created to meet your particular requirements using both external data and through discussions with fund managers.

Given the governments move to offering green bonds, it really does give a strong indication as to what the future investment landscape will look like, how companies/businesses will want to be viewed and how investors changing attitudes can influence that.

Contact Kreston Reeves Financial Planning on +44 (0)1227 768231 or provide your details on our online enquiry form if you would like to discuss investing sustainably or reviewing an existing investment portfolios sustainability credentials and/or if there are more suitable options available to you in-line with your personal preferences.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.