Green Gilts carry risks as well as benefits

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Green Gilts carry risks as well as benefits

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Will Sir Robert Stheeman become the Green Knight?

In a good sense, he may. The UK’s forthcoming green Gilts — to be issued via the Debt Management Office Stheeman heads — will be a standard fluttering at the spearhead of green finance, blazoning the UK’s adherence to the low carbon transition.

Green bonds are seasoned instruments that have caused few problems. Funds at home and abroad are likely to wolf the green-edged securities, etching a new curve inside the main Gilt one.

With the UK joining France and Germany, the US will have no obvious holdout to point to, and is likely to bring a green Treasury — provided the Democrats can win control of Congress and are not mired in trench warfare.

In themselves, green Gilts have no downside. The danger — as with green bonds in general — is that they act as a distraction.

The government might think by issuing green Gilts it had made a big achievement. It would not have. Beyond saving the Treasury a basis point or two and providing useful paper for investors, the benefits are soft: propaganda, essentially.

Much more important is the far harder and non-headline-worthy labour of prodding the financial markets to start leading the drive to net zero emissions, instead of being dragged behind it.

Thanks to Brexit, the UK is having to write its own suite of sustainable finance regulations. It can benefit from being a second mover: in most respects, the EU has gone ahead.

The EU rules are imperfect: too complex in some places, vague and gappy in others. To do better will require all the government’s art. Let’s hope not too much is diverted to designing the perfect green bond.

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