The Investment Association has published guidelines for the new green gilts the Government is planning to launch this year to tackle climate change, fund infrastructure projects and create green jobs.
The IA has set out a series key features it wants to see in green gilts so they meet both the government’s funding needs and the needs of savers.
The body wants to see strict use of proceeds, with legal documentation for green gilts explicitly noting how the proceeds are used to ensure that financing goes to projects aiming to achieve an environmental and social benefit.
It also wants green gilts to be medium-long dated, matching the likely timelines of the projects they are invested in. This will also allow investment managers, such as those managing pension funds, to meet the long-term investment needs of their customers, says the IA.
The IA says green gilts should be forward looking, and should include the integration of a social investment element, 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 says the IA.
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, says the IA. Scrutiny of this process should be carried out by an audit committee consisting of market and government representatives.
IA director for investments and capital markets Galina Dimitrova says: “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.”