As the UK prepares to part ways with the EU, chancellor of the exchequer Rishi Sunak has announced plans ‘green gilts’ in an attempt boost the country’s low-carbon commitments and aid the recovery from the pandemic. 
Addressing financial services for the first time since becoming chancellor in February, Sunak said on Monday that with the Brexit transition period ending next month the UK had an opportunity to set out a new vision for the sector.
He explained: “[It is] a vision based not on the race to the bottom but for a financial services industry that is open, is innovative and leads the world in the use of green finance.”
Part of this will include the issuance of so-called ‘green gilts’, the first of their kind in the UK.
These green gilts will be issued by the government specifically for funding climate and environmental projects and are already in use in other European countries, such as Germany and Sweden where recent issuance has been oversubscribed.
The gilts will form part of a commitment by the UK to reduce carbon emissions by 2050 by borrowing money for projects in low-carbon energy infrastructure, transport and other areas while interest rates currently remain at historic lows.
As well as green gilts the chancellor also announced new regulation, making it mandatory for companies and financial institutions to disclose its exposure to climate-change risks by 2025.
The UK will be the first major economy to enforce this type of regulation.
These new regulations come from recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).
In its report, the TCFD noted: “One of the most significant, and perhaps most misunderstood, risks that organisations face today relates to climate change.”
It said many companies wrongly believe that the impacts of climate change are long-term, and therefore aren’t relevant to decisions made today to tackle it.
Bryn Jones(pictured), fund manager of the £1.9bn Rathbone Ethical Bond fund, welcomed this “sensible development” from the Treasury and means the UK will join 16 other countries issuing green sovereign bonds.
He said: “Until now, we have been unable to hold conventional gilts in the Rathbone Ethical Bond fund because the proceeds of these could be used, for example, for armaments which contravenes our exclusion criteria.
“Clearly, the new sustainable bonds will need to meet the financial criteria as well.
“They should provide the ability to manage duration, liquidity and de-risk, while providing important financing to the future growth of the green economy."
Simon Bond, director for responsible investment portfolio management at Columbia Threadneedle Investments, said ‘green gilts’ have the potential to scale up the UK’s drive towards a net-zero carbon economy.
He said: “Proceeds can be directed into projects such as renewable energy provision or better transportation systems. Importantly, those projects will also create much needed 'green collar' jobs.
“So, it’s not just about the environment – there are huge potential social benefits, too.”
Bond added: “I’m confident a sterling-denominated UK green gilt will be welcomed by investors and thus help the government raise finance from new sources for environmentally beneficial projects.”
However, Dzmitry Lipski, head of funds research at interactive investor, said the launch of green gilts was “long overdue” and subject to market conditions – and therefore not guaranteed.
He said: “Corporate and government issuance of green bonds has been growing in the last few years – over $1trn in total – and green bonds are now very popular in Europe, with Poland (in 2016) and France (in 2017) the first to issue green bonds.
“Companies have led the issuance of green bonds and this has highlighted to governments the benefits of using them as a way to finance projects with environmental benefits.”
Saker Nusseibeh (pictured), chief executive officer at the international business of Federated Hermes, said new reporting regulations will help to move sustainability from a discussion into action for companies. 
He said: “Requiring UK companies to make mandatory disclosures against the TCFD-related financial disclosures framework will move discussions from the ‘whether’ to the ‘what’ and ‘how to’ stage: this is an extremely positive development.
“Plans to issue the UK’s first ever sovereign green bond next year is also a very significant step that will encourage private capital to flow more quickly, encouraged by government financial support and incentives.
“Together these are very promising moves and suggest the UK government is serious about being a world leader when it comes to tackling the climate emergency.”