The UK Government has announced plans to issue the world’s first retail ‘green’ savings bonds through the Treasury-backed National Savings & Investments (NS&I). The money will be used to finance environmentally focused infrastructure projects that help the UK meet its net zero target.
Money raised with NS&I’s Green Savings Bonds will be used to finance six types of green projects:
- Clean transportation
- Renewable energy
- Energy efficiency
- Pollution control & prevention
- Protecting natural resources and
- Climate change adaption.
To avoid concerns over ‘greenwashing’, annual reports on the social and environmental impacts of the projects will be published.
This retail offering is being issued alongside the UK’s first ever sovereign green bond – or green gilt; together they form a part of the UK’s commitment to reaching net zero by 2050. In advance of issuance, The Carbon Trust has reviewed the Government’s intended allocation of proceeds. They confirmed that the allocations ‘align sensibly’ with the UK’s climate targets and stated they ‘are confident that the programme will contribute to achieving net zero by 2050’.
How much interest will you be able to earn?
We don’t know yet what rate of interest the bonds will pay. The government has not included these bonds in NS&I’s normal funding target, so there is the possibility the rate of interest will be higher than standard NS&I products. Anyone holding an NS&I account will be aware that interest rates were slashed last year. The decision to hold interest rates at market leading levels meant they had overshot their government targets by £3billion.
The bonds will have a three year term with a fixed rate of interest paid. There will be a 30-day cooling off period, but you need to be certain you won’t need to access your money before subscribing. As with all NS&I products, your savings will be backed by HM Treasury, so they are secure.
Crucially, the interest won’t be paid until the bond matures – so, for tax purposes, you’ll receive three years of interest in one go. This will count towards your personal savings allowance and may trigger a tax bill if you exceed it.
Britain is keen to position itself as a green finance leader in the run-up to hosting COP26, the international climate summit, in November.
There is hope that the UK’s inaugural green bonds will mark the beginning of an ambitious green finance journey. Currently. there are relatively few secure options for those of us concerned by where our money goes once, we deposit it with High Street banks. These bonds could be a good option if you are looking to make an impact with your money and you are happy with the three year period.