Commenting on the first green gilts, Scott Freedman, fixed income portfolio manager at Newton Investment Management, part of BNY Mellon Investment Management said:
“Incoming green gilts could be the needed catalyst for more green and wider ESG-labelled bond issuance in the UK. Every time that we have a new green sovereign bond enter the market, we hope that it will help to raise the bar for minimum standards that the private sector will follow. This is something the UK Government is aware of, and for example we are seeing for the first time the introduction of targeted social co-benefits that will be included in reporting on a green government bond.
“As the use of proceeds bond market has developed, what started out with a focus on purely environmental factors, data around which is easier to capture and track, is beginning to transition to include a broader range of ESG factors. These are often more qualitative and harder to measure, but work is underway to establish certain frameworks, such as a social taxonomy in Europe for example.
“Although this is an exciting step, investors must analyse the labelled bond market holistically. Active investors have the opportunity to look beyond labels, and avoid the risk of greenwashing. For example, governments and companies that have relevant projects to parcel up into a green bond, should also be able to demonstrate a robust sustainability strategy that runs throughout the government or organisation with targets in place to improve outcomes for the environment and society.
“The UK’s green gilt framework has some good points in terms of two external opinions and an undertaking to provide extensive disclosure on use of proceeds, the majority of which needs to go towards “new” investment, but will not necessarily follow the EU taxonomy to the letter. Issuance patterns will be sensitive to the requirements of the wider gilt remit and to market liquidity needs, and over time will allow a “green curve” to develop.”