The UK’s investment management industry has set out its key asks for the green bonds the government has committed to launching, with application of the EU taxonomy’s ‘do no significant harm’ principle identified as one of several ideal features.
In a position paper, the Investment Association (IA) said the government may also wish to consider other existing frameworks such as the UN Sustainable Development Goals, the Impact Management Project’s impact management norms, or emission reduction targets determined as part of the UN Paris Agreement on climate change.
Italy recently made its debut green bond and although spending connected with the green bond will be directed at activities covered by the EU taxonomy, the “do no significant harm” norm was not incorporated in the green bond framework pre-issuance. Investors such as NN Investment Partners said they hoped it would still be applied.
UK investment managers are looking for the green Gilt-linked investments to be carried out “on the basis of compliance with the EU and UK taxonomies for sustainable economic activities”, according to the IA’s paper.
In November, when the UK government announced it would become a green bond issuer, it said it would implement a taxonomy, taking the scientific metrics in the EU’s framework as its basis.
The EU’s taxonomy regulation was passed in 2020, but due to opposition from within certain industry sectors, it is proving difficult to finalise the delegated act that sets out the specific criteria for what economic activity can be considered sustainable.
Another aspect UK asset managers would ideally like to see as part of the UK government’s green bond is a social investment element, according to the IA’s position paper.
Using proceeds to fund environmental projects with social co-benefits would “demonstrate the UK to be a world leader on social and environmental financing,” the IA stated.
Investment managers would want to see clear guidance from the government about how such a social element were to be incorporated, the industry body added.
It also relayed that investment managers would like the Gilts to be medium to long-dated, matching the likely timelines of the projects being invested in, and for them to be forward-looking.
“We’re already seeing a strong level of demand from customers for responsible investment products and look forward to working with government and our members to turn the proposed green gilt into a reality,” said Galina Dimitrova, director for investments and capital markets at the IA.
Speaking at a recent pensions industry conference, Laura Myers, head of defined contribution at consultancy LCP, said the government needed to show it had enough policies in place to meet its green commitments.
Some investors have called for the UK to go beyond use-of-proceed green bonds to issue sustainability-linked bonds.