The UK’s Green Gilt: Demonstrating the contribution to jobs and levelling up

In 2020, the Green+ Gilt proposal, produced by the LSE’s Grantham Research Institute, theGreen Finance Institute and the Impact Investing Institute, set out how the UK’s green gilt can both deliver on the country’s climate ambitions and generate social co-benefits, thereby contributing to reducing inequality and building back better.

At the 2021 Budget, the government announced that its first two green gilts will be issued in 2021, alongside a green NS&I product, and committed to “reporting on the contributions of green gilt-financed spending towards social co-benefits such as job creation and levelling-up”. In June 2021, the government’s Green Financing Framework gave substance to this commitment, indicating that such social co-benefits are expected to include job creation, loans to small and medium-sized businesses (SMEs), and supporting households to transition to low carbon heating. The first report on the environmental and social impacts of the green gilt and green retail savings bond will be published two years (or less) after issuance.

There is strong global momentum behind progressing delivery of and reporting on social impacts, demonstrated by the International Regulatory Strategy Group (IRSG) and KPMG’s recent report on social standards, as well as the EU’s Platform on Sustainable Finance’s recent draft reports on a social taxonomy.

The government’s reporting commitment signals its desire for the green gilt to benefit workers and local communities across the country. This could encourage other issuers at the corporate and local level to start reporting on the social co-benefits of green finance, and would mean the UK setting a new bar internationally for the reporting, as well as potentially delivery, of social outcomes using green bonds.

Given the short timeframe ahead of the first two green gilt issuances, we recommend the government adopts from the outset well-established social value indicators at the project level, as well as one or two nationwide indicators. In the context of the post-pandemic economic recovery and in line with the Green Financing Framework, we believe that decent job creation is the most appropriate category of social outcome and will resonate strongly with the public. Additional categories of outcomes, such as SME funding and transportation infrastructure, could be considered for future issuances.

This note from the Impact Investing Institute and the Grantham Research Institute outlines a practical and implementable framework for delivering the social co-benefits dimension of the UK’s green gilt, laying the foundations for further development in subsequent green giltissuances.

Written by Sarah Gordon, Bella Landymore and Joe Dharampal-Hornby of the Impact Investing Institute, and Professor Nick Robins and Sabrina Muller of the Grantham Research Institute.