The government raised £10bn from the sale of its debut green gilt last Tuesday, the largest inaugural green issuance by any sovereign, with investors placing over £100bn in orders, beating all previous records for British Government debt sales.
Columbia Threadneedle, Rathbones, River and Mercantile, AXA Investment Managers and ASI were among those taking advantage of the issuance.
Mark Healy, portfolio manager at AXA IM, said the deal was “fairly priced” at +7.5bps against the 2032 gilt and the issuance was “in line with our climate framework and market standards”, while the derivatives team at R&M will start to incorporate green gilts in client portfolios as part of the firm’s LDI strategy.
For Rathbones, it marked the first time the £2.6bn Ethical Bond fund has held government bonds. Lead manager Bryn Jones has lobbied the Debt Management Office for the past ten years for the issuance of green gilts.
He said: “The issuance is a positive initial signal, and it shows that the UK is on the right path, joining other countries issuing green bonds. We have included the green gilts in the portfolio to manage duration and liquidity, while providing vital financing to future growth of the green economy and supporting the race to net zero carbon emissions.”
He added: “We expect this year’s bonds to encourage more companies to start issuing green bonds as they recognise the strong demand for such securities. This should help broaden our opportunity set in sterling issuance.”
Columbia Threadneedle manager Simon Bond, who launched a campaign for green gilts in May 2019, confirmed the green gilt was “well supported by the funds of Columbia Threadneedle and particularly well supported by the Social Bond fund”.
He said the UK should be “far more prevalent” in the green bond market “given its aspirations” and said he is now waiting for the UK Infrastructure Bank – which launched in June – to issue bonds, as announced last year.
He added: “The Infrastructure and Projects Authority could look at sustainability and social bonds in trying to fund infrastructure, along the agenda of ‘building back better’ that the government is talking about.
“What I want to see from this particular issue is for it to be a catalyst for further issuance from other industrial sectors, particularly banks and utilities. This is proof positive that there is demand out there for these kinds of things, and that should be a wake-up call for both UK companies and people that could invest in sterling either from here or abroad.”
Earlier this year, the Treasury said the debut green bond was a “core part” of the Chancellor’s vision to establish the UK as a leader in sustainable finance, and will be followed by a second issuance later in the year, which is expected to be a longer-dated gilt with a maturity of 20-30 years.
Thomas Archer, global fixed income product specialist at Nikko Asset Management, said the firm did not participate in the launch of the green gilt “due to current portfolio positioning” but would consider investing in future issuances.
Archer said he was not surprised by the level of demand for the green gilt on the back of other countries in Europe having launched successful green bonds that were oversubscribed, and added he would like to see a green inflation-linked gilt next.
“A green inflation-linked gilt would be something the Treasury should look to pursue and would be compelling to investors to protect from inflation risk and liability management.”
Matthew Amis, investment director, rates management at ASI, said the bond came in at close to fair value both relative to other gilts with similar maturities and within a green bond framework.
“Taking into account the huge demand [and] slim allocations relative to a brown gilt syndication we expect this gilt to perform well in the coming days and months,” he said. “This will be aided by no further issuance of this 10-year green gilt until Q1 2022.”
Despite participating in the issuance, Amis said he does not take bonds labelled ‘green’ at face value when considering whether to invest.
He said: “We do see long-term value in the use of labelling of bonds, however we are not reliant on these labels. We would prefer a non-labelled sovereign bond issued by a Paris-aligned, credible sovereign over a green sovereign bond where the project may cause longer-term negative implications.
“What matters to us is the use of proceeds. In this case we are encouraged by the creation of a separate general account by the Treasury where the proceeds will be held and tracked. Information contained with the Green Register also allows investors to track expenditure towards eligible investments.”
However, Richard Carter, head of fixed interest research at Quilter Cheviot, warned the green gilt launch risked being labelled “a PR sideshow” unless the proceeds are put to good use.
“While issuance appears to be a resounding success, the proof will be in the pudding for the bonds’ eventual effectiveness,” he said.
“We need to see evidence that the proceeds are actually being used for projects that drive the transition to net zero and result in job creation in the green economy.”
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