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UK green savings bond sales ‘underwhelming’

The UK expects to raise £300mn from the sale of its inaugural green bond for retail investors by the end of the financial year, as critics question the environmental merits of the scheme.

The figure is a fraction of the £4bn the government hopes to raise in retail savings products in year to the end of March.

Although the government avoided setting targets for the scheme, David Barmes, economist at Positive Money, a not-for-profit advocacy group, said the sales look “pretty underwhelming”. 

Figures published by the UK Debt Management Office (DMO) on Wednesday, following the Spring Statement, offered the first signal of the uptake for the new green savings bonds, which were hailed by Rishi Sunak, the chancellor, as a key part of his bid to make the UK a centre for green finance.

The launch of the green-tinted bond by National Savings & Investments, the government-backed savings scheme, in October was met with scepticism as to whether investors would be willing to lock into a fixed-rate bond at a lower return that they could get elsewhere in the savings market.

The green savings scheme has also been criticised by environmental advocates as a political exercise with little direct environmental impact.

Barmes said the sales figures “reinforce the point that the whole thing is kind of futile”.

The launch of the savings bond, dubbed a “guilt-free gilt” in reference to the golden edge on traditional UK debt certificates, comes as the DMO said it expects to raise £10bn for the government from green bonds issued to professional investors in the market in the financial year, which runs to the end of March.

NS&I had not previously put a figure on how much it expected the green savings bonds to raise this year. However, the DMO cut its forecast for NS&I’s overall contribution by a third to £4bn.

The £300mn in sales for the green savings bonds will represent 7.5 per cent of the net financing raised for the government by the rest of NS&I’s savings products this year.

“There is just no need to ring fence money based on whether it’s green or not. You could say we are going to have education bonds or health bonds or anything bonds. But it’s entirely unnecessary,” said Barmes.

The green savings bonds offer a fixed rate of 1.3 per cent over their 3-year term, after NS&I doubled the interest rate in February. The new rate still lagged behind the best three-year fixed rate savings bonds offered by banks.

However, analysts said the initial sales estimate shows environmental considerations and the government-backed guarantee overcame pure financial arithmetic for some savers.

“A decent rate of interest combined with the green credentials has clearly prompted quite a lot of savers to part with their money,” said Laith Khalaf, head of investment analysis at investment platform AJ Bell.

Khalaf said some savers may still be reluctant to purchase fixed-rate bonds in the face of rising interest rates. “People will be thinking that if they hold off for six months they might get a better rate.” 

Savers who bought the green bond after it launched in October will remain stuck at 0.65 per cent, far lower than the best rates they could get today.

Proceeds from the bonds will fund government spending on environmental projects, NS&I has said. But some investors said there should be more details on where the cash will go.

“It’s unclear as to exactly where the money will be invested,” said Duncan Grierson, chief executive of Clim8 Invest, a climate impact-focused investment platform for retail investors. He said the lack of clarity made it difficult to assess the environmental benefits of the green savings bonds.

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