How effective will the UK’s new green savings bond be?

Following the government’s announcement of the first sovereign green savings bond for retail investors, we break down everything there is to know so far.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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The UK has a clear target to have net-zero carbon emissions by 2050. In an effort to bolster its green credentials, the government has announced the launch of the world’s first sovereign green savings bond for retail investors.

We break down everything you need to know about the UK’s first sovereign green savings bond.

What is the new green savings bond?

The new green savings bond is an investment product offered by the government. By taking out the bond, savers will be buying into projects dedicated to bringing the country’s carbon emissions down.

Chancellor Rishi Sunak says the green savings bond “will give people across the UK the opportunity to contribute to the collective effort to tackle climate change”.

This will be done through the proceeds from the bond being used for projects such as renewable energy and clean transportation.

When will the bond be available?

At the time of writing, details about the green savings bond are relatively scarce. We know it will be offered by National Savings & Investments (NS&I), the government-backed savings scheme. It is expected to go on sale later in 2021.

Rules surrounding how the money raised can be spent, and how the government will report on this spending will be based on the UK’s sovereign green bond framework. But this has yet to be finalised.

Other than that, there is very little information available. Details should be forthcoming over the next few months. 

How effective are green bonds?

As the world is waking up to the impact of climate change, so are investors and savers. The market for environment, social or governance (ESG) products has grown significantly over the past couple of years.

Green investing is very much in demand. And because there is more demand than there is supply, the government can secure quite cheap funding.

Meanwhile, as a retail investor, by investing in this type of bond you can be sure that any funds raised will be directed towards renewable energy or clean energy projects. It won’t be like a standard sovereign bond. With those bonds, the government can use the funds to finance any policies they want.

How effective the green savings bond will be will depend on the supervision of the funds raised. And this will be down to the yet-to-be unveiled UK sovereign green bond framework.

There is also the potential for capital appreciation for retail investors. As countries and the markets move further towards green investments, demand is likely to be sustained.

How can I invest in green bonds?

If it is specifically the government’s green savings bond you are interested in, then you will need to wait until it goes on sale with NS&I later in the year.

However, if you are interested in green investing as a whole, then finding an investment platform that fits your values is key. For example, Nutmeg has a pre-packaged Socially Responsible portfolio that focuses on ESG factors.

If you already have a share dealing account, then maybe research whether it offers you access to these types of investments and funds.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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