The chancellor, Rishi Sunak, used his March Budget to announce a world-first – a “green” savings bond to be issued by National Savings & Investment (NS&I).
Due to launch sometime in 2021, little is currently known about the specifics of the savings product. But Sunak did promise that it would allow UK savers to support green projects and help the country to achieve its carbon emission target of net-zero by 2050.
So, what do we know about the NS&I bond and what does it tell us about the state of sustainable investing as a whole?
Sustainable investing has gone mainstream
Environmental, social, and governance funds performed well in 2020
ESG investing – which focuses on environmental, social, and governance factors, as well economic ones – has been on the rise over recent years.
In 2019, FTAdviser reported an increase of nearly 2,500% in the amount invested in ESG funds between 2014 and 2019. The yearly average was a massive £124 million a week and that figure is solely for UK-based ESG funds.
While the stock market suffered huge downturns in 2020 – March saw the FTSE, Dow Jones, and S&P500 all suffer their worst day in 30 years – ESG funds fared better. 2020 was a record year for ESG, with £37 billion of inflows for the first quarter alone, more than 72% of which went into European funds.
Investment banking company Federated Hermes confirmed back in May 2020 that 85% of UK independent financial advisers had seen a rise in client requests for ESG investment since the start of the pandemic.
Many different factors contributed to ESG’s success
Media focus on climate change and the environment, even during the pandemic, has kept sustainability centre stage. This was helped by the resurgence of nature during the initial lockdown.
The Guardian at the time reported coyotes on the Golden Gate Bridge, deer grazing in Washington, and goats in Llandudno. There were also stories of Venetian canals running clear, and reports of improved air quality as we were all forced to stay at home.
Social and governance issues have also been in the news, from racial injustice to the gender pay gap and the perils of fast fashion.
Raised awareness of ethical and societal issues has helped increase flows into ESG funds, but their performance has also helped to maintain their popularity.
ESG funds outperformed their non-ESG counterparts across global, UK, and equity income sectors last year, leading to many in the industry, including BlackRock, dubbing 2020 as the year “sustainability goes mainstream”.
The government gets on board with ESG through its NS&I green bonds
The chancellor used his March Budget to incorporate environmental and net-zero considerations into the Bank of England’s remit. He also announced a new “Infrastructure Bank”.
Set to launch in spring 2021, and located in Leeds, it will have an initial funding of around ÂŁ12 billion to invest in both public and private sector green projects across the UK.
The biggest green announcement in the spring Budget was the arrival of the NS&I green bond. But what is it? And why might you opt for one?
Why NS&I?
Savings rates have been low since the global financial crisis of 2008 and current historic lows make saving increasingly unappealing.
With the Treasury-backed NS&I, you are effectively lending money to the government, meaning your funds are 100% secure. Your money might not see huge returns but knowing that your fund is protected might be a sufficient incentive.
What will the green bond look like?
The NS&I green bond will give you the same security as other NS&I products, with the bonus of investing in a way that aligns with your values on ESG issues. You will also be helping the government to meet its ESG commitments.
Specifics on the green bonds are due to be released in June. This should include confirmation of the interest rate the product will offer, as well as further details about the projects your investment will support.
So far, the government has confirmed the savings bond will tackle climate change through a focus on renewable energy and the creation of “green” jobs.
Savers will be hoping for an attractive interest rate, but the bonds’ ethical credentials might prove sufficiently tempting.
A 2020 report from MSCI found that 95% of millennial investors were interested in sustainable investing and that 57% had intentionally stopped investing, or declined to invest, based on a company’s record on social factors.
With LCP confirming that the coronavirus has created six million “accidental savers”, the government will be only too aware that consumers are looking for alternative places to keep their funds.
When does it arrive?
For now, even the launch date for the new bonds is a mystery. They are anticipated to arrive sometime in the summer.
Get in touch
If the last twelve months have made you re-evaluate your investment portfolio, we can help you better align it with your values on ESG issues.
Please get in touch if you’d like to discuss your current investments, investing for the first time, or any other aspect of your long-term financial plans.
Please note
The Financial Conduct Authority does not regulate NS&I products.
