Green Bonds: What are they and are they right for your business?

Rishi Sunak

Rishi Sunak

Following Chancellor Rishi Sunak’s announcement of the launch of Green Bonds, Tandem Bank shared their thoughts with Business Leader on what it could mean for businesses in the UK.

Earlier this month Rishi Sunak announced the introduction of ‘green’ savings bonds in the Budget, giving investors the opportunity to buy into projects dedicated to accelerating the UK’s push to become a net-zero economy.

Money raised from the sale of the sovereign debt will be ploughed into programs underpinning the transition to a low-carbon economy, create green jobs and support efforts to tackle climate change.

These include renewable energy and clean transport initiatives deemed key to Britain meeting its goal of cutting greenhouse gas emissions to net zero by 2050.

Describing the bonds as ‘world-leading’ the Chancellor said it would: “Give all UK savers the chance to support green projects.”

The notes – whose size, price, yield, term and structure has yet to be determined – will be offered later this year through National Savings & Investments, the government-backed scheme which also offers Premium Bonds.

Some analysts have predicted the green bonds will ‘sell like hotcakes’ when they land this summer, with environmental concerns being at the forefront of many people’s minds.

But others have pointed out the devil is in the detail – which we just don’t know yet.

If the government sets interest rates paid on the bonds too low and they won’t sell, too high and people will question the cost to the taxpayer.

What’s for sure is that green bonds aren’t a new concept – £190bn worth of green bonds were sold last year, and Germany launched its own Green bond package in September, raising €6.5bn (£5.8bn) of 10-year debt.

Ricky Knox, Tandem Bank CEO says: “We welcome the government’s announcements in the budget around green bonds and green investment as it shows that they are listening to the public’s demand for a more sustainable future. There are however a lot of uncertainties with regards to the product, with the interest rate paid on the bond being a key factor in its success or failure. Whilst the creation of the green bond was a positive that came out of the budget we would have welcomed other more progressive thinking and action if we are to enable every household in the UK to directly contribute to our net zero pledge.”

Following this, Ricky answered some common questions asked by entrepreneurs and business owners.

Q: Are they safe?

In short, yes – because they’re backed by the Treasury, unless the UK goes bust, it’s about as safe as can be possible. Regular UK savings accounts are guaranteed up to £85,000, but it’s likely the safety net for the green bonds will be set lower than this. Of course, before you sign up, do read all the small print to make sure you’re protected.

Q: Are these bonds the only way to invest my money to save the planet?

Not at all – there’s a growing range of other green accounts which offer decent returns on your money while investing in projects to safeguard the environment. Tandem’s new Instant Access Savings Account is definitely one to look at with market-leading rates.  Along with its upcoming Green Fixed Term Saver and Green Mortgage, Tandem is leading the charge to address consumers’ increasing desire to go green.

Q: Should I buy some of these bonds when they’re released?

It all depends on what kind of rate the bond might offer – so it’s in the Government’s interests to make them attractive. Rishi and his team will know there are already a host of other green bonds out there offering competitive rates, such as the Gatehouse green savings bond, offering 1.4% for five years. But with savings rates so low at the moment, and funding so cheap, the Government won’t have too hard a sell for those of us wanting a guaranteed return while locking in our savings.


Meet one of the firm’s offering a ‘Green bond’

Hitachi Capital (UK) PLC, rated A- by S&P, has today placed a three year $40m senior unsecured Medium Term Note with a single investor, with a coupon of 1.07%.

The note is issued as a Green Bond under Hitachi Capital UK’s EMTN programme and will be used exclusively for the financing of eligible projects under the recently published Green Financing Framework. The notes were issued to a single investor, Dai-ichi Frontier Life Insurance Co.,Ltd.

The issuance confirms Hitachi Capital UK’s continued commitment to its sustainability strategy, with the Green Financing Framework facilitating the funding of green projects including the provision of leases for Battery Electric Vehicles, Hybrid Solar Farms and Electric Vehicle charging points.

NatWest and Nomura acted as joint Green Structuring Banks for the Hitachi Capital UK Framework, with NatWest supporting on the creation of the Green Financing Framework and Nomura supporting on the obtaining of the Second Party Opinion.  NatWest acted as Dealer on the MTN issuance.

Robert Gordon, CEO of Hitachi Capital (UK) PLC, said: “Issuance of our first green bond marks another key milestone in our wider vision of financially supporting clean transportation and renewable energy projects which help accelerate electric mobility and address climate change.

“Through our Green Financing Framework, utilising our financial strength and expertise, our intention is to issue further green bonds aligned to our commitment that 20% of our assets will support sustainable business projects over the next five years.”

Masakatsu Mizukami, Executive Officer of Dai-ichi Frontier Life Insurance Co.,Ltd. said: “Our company manages assets of JPY8.9 trillion sourced from insurance premiums from customers throughout Japan.

“As a responsible institutional investor, we have a strong belief that promoting responsible investment contributes towards realising a sustainable society and are actively engaged in SDGs investment. “