How Green Gilts will help mobilise finance to fight climate change

Like many investment houses, Coutts is committed to sustainable investing to help grow clients’ wealth. For us this extends beyond simply offering clients the chance to put their money into funds which have specific ESG (environmental social and governance) criteria and exposure. We know the route to sustainability requires change and vision in everything we do as individuals, as organisations and as countries. Therefore, as part of the NatWest Group, Coutts will be sponsoring this year’s UN Climate Change Conference in Glasgow – also known as the Conference of Parties or ‘COP 26’.

Our involvement is not just about association. A stated goal of COP 26 is to mobilise finance to help stop climate change by calling on public finance to develop the infrastructure needed to transition to a greener and more climate-resilient economy. Parallel to this, COP 26 also calls on private finance to fund technology and innovation, and to help turn billions of public money into trillions of total climate investment: supporting the infrastructure that is needed to mitigate the impact of climate change and drive the reduction of carbon emissions.

The issuing of a green UK government bond or ‘gilt’ unites the power of both private and public finance to help realise this change. By allowing private finance to buy state debt, the UK government will be able to commit to investing in, and growing, sectors that will be critical to achieving a carbon neutral economy by 2050. The below table shows where the money will be invested, as well as which sectors will be excluded.

Source: UK Debt Management Office  

The issuance of green gilts should make £15 billion available for the above investments in the 2021-22 financial year, providing real growth to help meet the world’s most ambitious climate change target of reducing emissions by 78% of 1990 levels by 2035.

The green gilt programme works in tandem with the 10 Point Plan announced by the Prime Minister in November 2020, which set out the government’s approach to the country’s green industrial revolution with the aim of creating and supporting up to 250,000 green jobs.

Why is this so exciting for Coutts?

The UK’s Green Gilt is exciting because it is both the fruition of the lobbying for sustainable investing by the financial sector which Coutts has taken a lead on, and a recognition that sustainability and prudent investing are by no means exclusive. Our recent listing as a B Corp demonstrates our commitment to doing well for our clients by doing good. This means that as a business we believe in transparency and good governance and that as a financial body we believe in the critical role of sustainable investing in creating a future in which we want to live.

By mobilising finance to invest in public policy, Green Gilts are not only supporting the changes in our economy that are needed to adapt to and counter climate change, they are complementing the private sector’s ability to benefit from a sustainable economy. This matters because Coutts is already a major investor in businesses and equity markets that have stringent sustainability goals. The potential for growth can rise significantly when goals and investment purposes are aligned throughout a portfolio and this underpins the sector wide acknowledgement that prudent economics is tied to good ecological management.

Furthermore, it is hoped that Green Gilts, expected to be issued with a 10-12 year maturity, will be instrumental in making the UK economy more efficient, better placed for growth and more investable. Unique to green bonds, these green gilts are structured to also consider and report on co-social benefits, encouraging job creation, reduced household energy consumption, better land use, flood defence and new climate-related technologies. This shows an understanding that there is no part of society that will be unaffected by climate change and that it is often the poorest communities who are most vulnerable to its effects: for example those impacted most by rising energy costs due to poor quality housing. In comprehending the need for investment to address climate change at both a social and an environmental level, Green Gilts can also play a role in making UK businesses and networks world leaders in the increasingly competitive space of sustainability.

For the individual investor they will provide a low-risk asset which is denominated in pounds, and which should hold parity with other government debt issuances. This is important for our investors because it gives them the chance to access green investments, increasing the weighting of sterling-based assets within the green bond market that already exists while supporting the greening of the UK economy. We believe it will also encourage similar issuances of green corporate debt, further expanding the sustainable investment universe and mobilising private capital to climate change initiatives.

More than this though, Green Gilts provide us with an investment ticket that galvanises the mandate for sustainability in both finance and government policy.