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Responsible Banker - 16 November 2020

  • Published date: 16.11.2020
  • Category:

ARTICLE OF THE WEEK

UK to issue inaugural sovereign green bond in 2021

What’s happening? UK Chancellor Rishi Sunak has said the country's first sovereign green bond will be issued in 2021. He noted it would be the first “in a series of new issuances”, as the government seeks to fund climate projects and create green jobs.

Why does this matter? Sunak’s announcement – made at the virtual Green Horizon Summit – will likely be greeted with approval given third parties have been calling for such an issuance. NatWest, BlackRock, Axa and Barclays were among a group of 30 institutions collectively calling on the UK government to issue a green bond, noting it would also help enhance the country’s reputation ahead of the delayed COP26 summit in 2021.
 
The UK will join the likes of GermanySwedenMexico and Egypt, as the latest entrant to the sovereign green bond space. The global green bond market is projected to potentially reach $2.36tn by 2023 and, alongside corporate issuances, there has been a significant trend in the growth of sovereign green debt. It's also perhaps noteworthy that many world leaders have stressed the need to tackle climate change in their congratulatory messages to US President-elect Joe Biden, perhaps hinting that greater sovereign "green" action is around the corner. 
 
There has been evidence of strong demand for sovereign green debt. Germany, for example, saw near-record popularity for its first green bond issuance in September which was reportedly five-times over-subscribed. An issuance from Sweden, also in September, was also two-times over-subscribed.
 
Recent developments, however, as well as the dynamics of the green debt market during 2020, show how popularity isn’t always guaranteed for these securities. Germany’s second venture into the market, for instance, has seen quite a contrasting response to its first, meeting relatively lukewarm demand from investors.
 
Sunak’s announcement – made at the virtual Green Horizon Summit – will likely be greeted with approval given third parties have been calling for such an issuance. NatWest, BlackRock, Axa and Barclays were among a group of 30 institutions collectively calling on the UK government to issue a green bond, noting it would also help enhance the country’s reputation ahead of the delayed COP26 summit in 2021.
 
The UK will join the likes of GermanySwedenMexico and Egypt, as the latest entrant to the sovereign green bond space. The global green bond market is projected to potentially reach $2.36tn by 2023 and, alongside corporate issuances, there has been a significant trend in the growth of sovereign green debt. It's also perhaps noteworthy that many world leaders have stressed the need to tackle climate change in their congratulatory messages to US President-elect Joe Biden, perhaps hinting that greater sovereign "green" action is around the corner. 
 
There has been evidence of strong demand for sovereign green debt. Germany, for example, saw near-record popularity for its first green bond issuance in September which was reportedly five-times over-subscribed. An issuance from Sweden, also in September, was also two-times over-subscribed.
 
Recent developments, however, as well as the dynamics of the green debt market during 2020, show how popularity isn’t always guaranteed for these securities. Germany’s second venture into the market, for instance, has seen quite a contrasting response to its first, meeting relatively lukewarm demand from investors.

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