Rishi Sunak has been urged to issue a new generation of green bonds that would offer higher returns to investors if the UK government fails to meet its climate change goals.
The Social Markets Foundation (SMF) says its sustainability bond plan will give ministers more impetus to meet carbon reduction targets and help boost the UK’s prospects for global finance. green finance center.
A report released by the think tank on Tuesday called on the chancellor to follow the example of Chile, the first country to link the cost of borrowing its public debt to tackling global warming.
Scott Korf, SMF’s research director, said: “Financial services will be key to delivering net zero, and green finance could be one of the big stories of Britain’s economic success in the 2020s. Already 200,000 financial services workers are in green jobs – a number that will undoubtedly grow in the coming years.
“The government needs to work in partnership with the financial services industry to make the UK a leading center for sustainability finance. As an example, the Chancellor should issue a new generation of government bonds related to sustainability, which will link interest payments to the country’s zero zero targets. This will not only support green financial services, but the prospect of financial sanctions for missing net zero targets will strengthen the government’s commitment to decarbonisation.
Corfe said Sunak should start small to test investor interest, but added that the Chilean example suggested that demand would be high.
In March, Chile issued a $ 2 billion (£ 1.6 billion) bond tied to sustainability, which was quadrupled. Investor returns depend on the country sticking to its promises on climate change, including no more than 95 metric tons of carbon dioxide or equivalent by 2030, and renewable energy accounting for 60% of electricity production by 2032 d. If Chile misses the target, it carries a financial penalty.
Sunak wants London to be a center for green finance, and last year announced a program under which green bond proceeds would be used for environmental projects. The finance ministry says two bond issues have already raised £ 16 billion, but they need to be confident that the new forms of financing will lead to strong, sustainable demand and be worth the money for taxpayers.
Sign up for the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk
“The United Kingdom is a world leader in green finance, and the Chancellor has set a clear path for Cop26 to make the United Kingdom the world’s first zero-net financial center,” said a spokesman for the Treasury.
The SMF said the issuance of sustainability bonds would show that the government is “fully committed” to decarbonisation. The threat of financial sanctions for over-promise and under-execution could prove to be “a powerful way to keep the government true to its net zero”.
The interest rate or coupon on a standard government bond is determined when sold at auction to investors, and the interest rates on index-linked bonds are adjusted for inflation.
Add Comment