UK's first green gilt smashes records with £90bn of demand

ColdIron

The UK’s first green gilt is on track to beat all previous records for British government debt sales.

Investors are said to have placed more than £90bn in orders for the 0.875% July 2033 green gilt this morning, according to Reuters, with price guidance for the green government bond tightened to 7.5 basis points over the benchmark June 2032 gilt.

https://www.investmentweek.co.uk/news/4037404/uk-green-gilt-smashes-records-gbp90bn-demand

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1016808/130921_Green_Gilt_Investor_Presentation.pdf

tebbins

Have they actually specified what it will be spent on besides providing the criteria, and what recourse is there if investors don't agree with what expenditure it ends up being allocated to? HS2 could qualify and swallow up the entire demand.
In a way this could risk forcing the government to overspend on pointless projects to ensure the amount of green gilts issued matches the amount allocated to qualifying expenditure.

jamesd

tebbins said:

Have they actually specified what it will be spent on besides providing the criteria, and what recourse is there if investors don't agree with what expenditure it ends up being allocated to? HS2 could qualify and swallow up the entire demand.
In a way this could risk forcing the government to overspend on pointless projects to ensure the amount of green gilts issued matches the amount allocated to qualifying expenditure.

Personally I regard it as greenwashing part of the national borrowing requirement. The process is:

1. Look at total government spending
2. identify the portion of this that meets some sort of green criteria, pages 15-18 give details
3. green debt can be issued up to the number in 2 without any requirement for any actual change in government expenditure towards greenness.

Current year and next two year spending on HS2 appears to meet this criterion:

"Green Category: Clean Transportation

• Low and zero emission mobility, including vehicles, incentives, infrastructure, and alternative fuels

• Research and development for low and zero emission transportation technologies Example expenditures

• Zero-Emission Buses: The UK Government is decarbonising the bus fleet in England by rolling out zero-emission buses which will deliver cleaner and more reliable journeys for households. The National Bus Strategy laid out a plan to support at least 4,000

new zero-emission buses"

Examples from some of the other categories include:

Renewable energy: funding the Renewable Heat Incentive scheme
Energy efficiency: the costs of improving public sector energy efficiency
Pollution prevention and control: carbon capture and storage
Living and natural resources: wide range of environmentally oriented spending like paying farmers to farm less efficiently or plant trees
Climate change adaptation: flood protection

Exclusions include nuclear energy, fossil and ethanol using vehicles, large-scale hydroelectricity, weapons, tobacco, gaming, palm oil, manufacture of alcoholic beverages.


As a result these green bonds do not meet my own criteria for green investment. because they boycott important or normal activities, namely nuclear power and improving the energy efficiency and other environmental performance of alcohol production, which appears to be a form of indirect religious discrimination.

As a practical political matter I doubt that HS2 will be included in the early years due to the potential for bad publicity.

tebbins

jamesd said:

tebbins said:

Have they actually specified what it will be spent on besides providing the criteria, and what recourse is there if investors don't agree with what expenditure it ends up being allocated to? HS2 could qualify and swallow up the entire demand.
In a way this could risk forcing the government to overspend on pointless projects to ensure the amount of green gilts issued matches the amount allocated to qualifying expenditure.

Personally I regard it as greenwashing part of the national borrowing requirement. The process is:

1. Look at total government spending
2. identify the portion of this that meets some sort of green criteria, pages 15-18 give details
3. green debt can be issued up to the number in 2 without any requirement for any actual change in government expenditure towards greenness.

Current year and next two year spending on HS2 appears to meet this criterion:

"Green Category: Clean Transportation

• Low and zero emission mobility, including vehicles, incentives, infrastructure, and alternative fuels

• Research and development for low and zero emission transportation technologies Example expenditures

• Zero-Emission Buses: The UK Government is decarbonising the bus fleet in England by rolling out zero-emission buses which will deliver cleaner and more reliable journeys for households. The National Bus Strategy laid out a plan to support at least 4,000

new zero-emission buses"

Examples from some of the other categories include:

Renewable energy: funding the Renewable Heat Incentive scheme
Energy efficiency: the costs of improving public sector energy efficiency
Pollution prevention and control: carbon capture and storage
Living and natural resources: wide range of environmentally oriented spending like paying farmers to farm less efficiently or plant trees
Climate change adaptation: flood protection

Exclusions include nuclear energy, fossil and ethanol using vehicles, large-scale hydroelectricity, weapons, tobacco, gaming, palm oil, manufacture of alcoholic beverages.


As a result these green bonds do not meet my own criteria for green investment. because they boycott important or normal activities, namely nuclear power and improving the energy efficiency and other environmental performance of alcohol production, which appears to be a form of indirect religious discrimination.

As a practical political matter I doubt that HS2 will be included in the early years due to the potential for bad publicity.

It's a shame because clearly there's a f***-ton of demand (£90bn is nearly NS&IS entire balance sheet... Though i last looked at that a while ago) prepared to accept lower interest for genuinely useful things, and it's not like (pardon my cynicism) the family, friends & donor trough would be less full. It's more like it would be a trough made of recycled material and the pigs have to clean up the sty to eat from it.
The current approach is more like painting one end of the trough green and requiring the pigs to fill in a form saying how well-behaved they've been before eating from the green end of the trough.
... I'm a loss to the political satire industry.

jamesd

LOL at the satire.

Consider the religious discrimination aspect. There's no mention of a ban on activities relating to the raising and killing of the cow for food, yet this is fundamental to one of the world's great religions and has even resulted in lynchings in recent years just based on rumours that it might be happening. So via the choice of exclusions the product appears not suitable for followers of that religion but suitable for those of other religions because of exclusions related to their beliefs. At the moment it looks like exclusions used in Sharia-compliant investments have been used.

On the receiving rather than buying end part of the issue is who, based on religious rules implemented by the bonds, won't get free or cheaper money, so will pay more to do things.

Here's the investor presentation for the first bond.

Malthusian

I am not sure that raising money from Islamic investors (those would not buy traditional gilts due to a perceived risk that the money would end up being used to fund alcohol production or similar) constitutes discrimination against Hindu investors. If there is enough demand from Hindu investors for gilts that exclude cow farming then the Government will surely look to launch their own saffron gilt.

We don't have separation of church and state in this country anyway.

Malthusian

And as others have said this is a philosophical argument anyway. Government money = government money. If Philip Morris launches a non-smoking bond which is supposedly ringfenced for its pharmaceutical interests and I invest in it, I'm still lending money to a tobacco company.

jamesd

Malthusian said:

I am not sure that raising money from Islamic investors (those would not buy traditional gilts due to a perceived risk that the money would end up being used to fund alcohol production or similar) constitutes discrimination against Hindu investors. If there is enough demand from Hindu investors for gilts that exclude cow farming then the Government will surely look to launch their own saffron gilt.

Yes, I think it just copied common Sharia investment exclusions to qualify for middle eastern money. I don't think it's a necessary issue. On the investor side the boycotts needed for more religions could be included and on the project side the projects could be evaluated without religious conditions then the ones that don't fit them offered money at the same rate from other sources.

Thrugelmir

jamesd said:

tebbins said:

Have they actually specified what it will be spent on besides providing the criteria, and what recourse is there if investors don't agree with what expenditure it ends up being allocated to? HS2 could qualify and swallow up the entire demand.
In a way this could risk forcing the government to overspend on pointless projects to ensure the amount of green gilts issued matches the amount allocated to qualifying expenditure.

Personally I regard it as greenwashing part of the national borrowing requirement. The process is:

1. Look at total government spending
2. identify the portion of this that meets some sort of green criteria, pages 15-18 give details
3. green debt can be issued up to the number in 2 without any requirement for any actual change in government expenditure towards greenness.

Current year and next two year spending on HS2 appears to meet this criterion:

"Green Category: Clean Transportation

• Low and zero emission mobility, including vehicles, incentives, infrastructure, and alternative fuels

• Research and development for low and zero emission transportation technologies Example expenditures

• Zero-Emission Buses: The UK Government is decarbonising the bus fleet in England by rolling out zero-emission buses which will deliver cleaner and more reliable journeys for households. The National Bus Strategy laid out a plan to support at least 4,000

new zero-emission buses"

Examples from some of the other categories include:

Renewable energy: funding the Renewable Heat Incentive scheme
Energy efficiency: the costs of improving public sector energy efficiency
Pollution prevention and control: carbon capture and storage
Living and natural resources: wide range of environmentally oriented spending like paying farmers to farm less efficiently or plant trees
Climate change adaptation: flood protection

Exclusions include nuclear energy, fossil and ethanol using vehicles, large-scale hydroelectricity, weapons, tobacco, gaming, palm oil, manufacture of alcoholic beverages.


As a result these green bonds do not meet my own criteria for green investment. because they boycott important or normal activities, namely nuclear power and improving the energy efficiency and other environmental performance of alcohol production, which appears to be a form of indirect religious discrimination.

As a practical political matter I doubt that HS2 will be included in the early years due to the potential for bad publicity.

The future cost of going green is eye watering. Just the start of a long road. Where Government support maybe neccessary to kick start new industries. 

Audit office and select committees will ensure that the money is wisely spent. 

Eco_Miser

Malthusian said:

I am not sure that raising money from Islamic investors (those would not buy traditional gilts due to a perceived risk that the money would end up being used to fund alcohol production or similar) constitutes discrimination against Hindu investors. If there is enough demand from Hindu investors for gilts that exclude cow farming then the Government will surely look to launch their own saffron gilt.

We don't have separation of church and state in this country anyway.

Surely gilts pay interest, rather than a share of profits, so are fundamentally non sharia compliant, whatever they may or may not be funding?

tebbins

Eco_Miser said:

Malthusian said:

I am not sure that raising money from Islamic investors (those would not buy traditional gilts due to a perceived risk that the money would end up being used to fund alcohol production or similar) constitutes discrimination against Hindu investors. If there is enough demand from Hindu investors for gilts that exclude cow farming then the Government will surely look to launch their own saffron gilt.

We don't have separation of church and state in this country anyway.

Surely gilts pay interest, rather than a share of profits, so are fundamentally non sharia compliant, whatever they may or may not be funding?

There's been a second issue of Sovereign Sukuk's, however the same problem arises that government finance is government finance. You are still lending money to a government that is a a major beneficiary of alcohol duties, lottery and gambling profits, and that bailed out banks in 2008.