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UK’s first sovereign green bond: risk of greenwashing is high

13th November 2020

Commenting on the UK’s first sovereign green bond announced this week, Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management (RLAM) said:  

“We welcome the government’s announcement relating to green finance and to the issuance of the UK’s first Sovereign Green Bond, but warn that the risk of greenwashing is high and that a lot of attention will have to be placed on how these bonds will be structured.

“As we outlined in a letter to the Chancellor, we encourage the UK government to think carefully about how these bonds are structured. One common issue that we see with green bonds is that the debt is often not ring-fenced, meaning that it could be serviced by cash produced from other less environmentally friendly activities. For example, whilst the green bond we could be investing in is financing the construction of wind farms, the cash we receive to cover the repayment of interest could in reality be financed from the construction of a new airport runway. The result is that the green credentials of the bond are weakened.”