Feeling gilty: Are green gilts a good way to fund environmental change?
Image description: An offshore wind farm
The announcement of the government’s uncharacteristic success in raising £10 billion to fund green projects in the UK in the form of “green gilts” is one that is welcomed. Many schemes that benefit the environment on both a small and large scale simply require the necessary funding: a gap this green gilt issue could achieve. The UK government’s demonstration of commitment to improving the environment comes in the lead up to COP26 – the upcoming climate change conference later this year. COP26 will be hosted in Glasgow next month where the UN will review the work of all participating countries in reducing their environmental impact in line with the targets set out in the 2015 Paris Agreement.
Many schemes that benefit the environment on both a small and large scale simply require the necessary funding: a gap this green gilt issue could achieve.
Green gilts are a form of government debt being issued, earmarked solely for use on environmental projects and have been met with praise from many initial investors, both domestically and overseas. Despite the early success of the scheme, Britain is not the first to roll out this type of green funding: eight other countries have all raised green funds with similar schemes, including particular success in Germany and Italy.
The pot of green money will be used for ‘eligible green projects” that range from investment in electric public transport, sustainable energy sources such as wind power, and desperately needed flood defences for regions annually decimated by burst banks. Flaws in the scheme are easy to identify, but this necessary step taken to prioritise green projects is one that brings the UK a step closer to reaching our net-zero emissions target by 2030.
Many environmental activists and leading ESG investors have taken issue with Britain’s attempt to join the green gilt movement, with many pointing out how it could be greener still. Firstly, the labelling of a particular pot of money to be green highlights the fund as an extra burden of debt for the government to contend with, whereas the debt that arises from spending on such projects should be part of their necessary spending without the additional label. It suggests that the tracking of spending on environmental projects is being closely tallied, as though a sum spent by 2030 will excuse not meeting necessary targets.
Labelling of a particular pot of money to be green highlights the fund as an extra burden of debt for the government to contend with.
Secondly, the scope of “eligible green projects” is one that has proved controversial between environmentalists. Not only does the scheme snub nuclear energy – one of the most effective alternatives to fossil fuels we currently have developed on a large scale, but it places unusual emphasis on carbon capture projects. The activity involves storing carbon dioxide from the atmosphere and locking it deep underground. It may appear to be beneficial, but it is expensive, reportedly costing the government £15 billion in the next gilt issue alongside similar projects. Additionally, it has not yet been proven to be impactful on a global scale.
What remains concerning is that carbon capture could be a scapegoat technique for companies to not have to reduce their emissions. Lead ESG investor William De Vries of Triodos Investment Management commented upon this risk as he declared the green gilt programme to not be “green” enough, the first of its kind the veteran sustainable investor has disputed.
“Green” labelling is merely another way for the government to convince the public that their commitment to green projects is meaningful.
Beyond expert opinion, wider discussion has been rightfully sceptical as to whether the scheme is simply another greenwashing ploy. The green gilt method of financing environmental projects has already been declared to be “a bit of a PR exercise” by economist David Barmes at Positive Money, a not-for-profit special interest group. The fact that this spending could fall under necessary infrastructure development or be classed as a societal need indicates that the “green” labelling is merely another way for the government to convince the public that their commitment to green projects is meaningful.
The green gilt scheme may be yet another attempt of the government proving they will commit to financing what many deem to be necessary public goods. Whether the gilts will cover all essential spending and whether it will truly reduce emissions rather than offset them is yet to be discovered. For now, eligible projects can tentatively accept funding the government have finally validated as a necessary expenditure as we approach a supposedly net-zero 2030.