UK’s first ‘green gilt’ sale sees record demand

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The UK’s inaugural “green gilt” sale was met with record demand on Tuesday, as the country belatedly joined a growing number of European governments that have sold bonds with proceeds earmarked for environmental spending.

Investors queued up to buy the new 12-year bond, placing £90bn of bids within the first hour after order books opened, according to bankers working on the deal. The UK’s Debt Management Office, the arm of the Treasury that handles bond issuance, plans to sell at least £15bn of green gilts this year, with a further sale scheduled for next month, as it launches one of the world’s largest green borrowing programmes.

The money raised by the bonds must be spent on projects including flood defences, renewable energy, or carbon capture and storage, in line with the green financing framework published by the government in July.

The new bond, which is due to mature in July 2033, was on course to price at a yield of about 0.9 per cent, putting it roughly in line with existing gilts of similar maturity.

The UK has arrived relatively late to the market for green sovereign debt, despite intense lobbying from a fund management industry anxious to demonstrate its sustainable credentials. Germany, France, Spain, Italy, Poland and Hungary are among European countries that have already sold green bonds.

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DMO chief Robert Stheeman had expressed reservations about the idea, telling the Financial Times last year that unless investors were prepared to pay a premium for green gilts, they might end up being poor value for money for the UK taxpayer.

Since then, green bonds have generally begun to price at slightly lower yields than their conventional counterparts — for example in Germany’s first green bond sale a year ago — locking in a small saving for issuers.

UK chancellor Rishi Sunak announced plans to sell green gilts last year “to meet growing investor demand”. He also said green government debt could eventually become a pricing reference for companies that want to sell green bonds of their own.

The banks handling Tuesday’s sale were Citigroup, Barclays, BNP Paribas, Deutsche Bank, HSBC and JPMorgan Chase.

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