Investment management industry outlines position on green gilts

Investment managers have today outlined their position on green gilts as the industry looks to play its part to help the UK meet its net-zero commitment by 2050.   

The government has committed to launching the UK’s first sovereign green gilt in 2021 in order to tackle climate change, fund infrastructure projects and create green jobs. The Investment Association (IA) has today set out ten key features which the industry would like to see as part of this green gilt, so that it meets both the government's funding needs and the needs of savers looking to invest for the future – these include:

• Strict use of proceeds: legal documentation for green gilts should explicitly note how the proceeds are used to ensure that financing goes to projects aiming to achieve an environmental and social benefit.
• Medium to long dated: green gilts should be medium-long dated, matching the likely timelines of the projects they’re invested in. This would also allow investment managers, such as those managing pension funds, to meet the long-term investment needs of their customers.
• Forward-looking: gilts should be forward looking, providing a long-term financing path for future projects.
• Social impact element: investment managers support the integration of a social investment element into the green gilt, with funding for environmental projects with social co-benefits. The integration of social impact investing would demonstrate the UK to be a world leader on social and environmental financing.
• Use of an audit committee: in line with the 'ICMA Green Bonds Principles', the government should set out their sustainability objectives, the process for determining eligible projects, the eligibility criteria covering any exclusions and the process for environmental and social risk due diligence. Scrutiny of this process should be carried out by an Audit Committee consisting of market and government representatives.

Galina Dimitrova, Director for Investments and Capital Markets at the Investment Association said:

“The creation of a green gilt will bolster the UK’s credentials as a world leading green investment centre and demonstrate the government's commitment to achieving the 2050 net zero target. The green gilt has the potential to provide much-needed investment into sustainable projects and businesses, while providing long-term returns for savers. We're already seeing a strong level of demand from customers for responsible investment products and look forward to working with government and our members to turn the proposed green gilt into a reality.”