The UK should follow in Chile’s footsteps in issuing so-called ‘sustainability-linked’ bonds, which pay out more to investors should the government fail to meet its net zero targets, according to one of the country’s top think tanks.
In a paper published today, the Social Market Foundation (SMF) has urged chancellor Rishi Sunak to haul in the new kind of bond, which Chile first introduced in March.
The $2bn (£1.6bn) sustainability-linked bond garnered more than $8bn (£6.3bn) in demand, with investors across the Americas, Asia and Europe.
The bond seeks to meet the 2015 Paris Agreement, which legally binds signatories to limit their CO2 emissions.
The UK offered two successful green bonds ahead of the UN’s flagship climate conference COP26, which raked in £100bn and £74bn from investors.
While the closely watched Z/Yen Group’s Global Green Finance Index saw London retain its crown as the globe’s greenest finance centre last week, the think tank has called on the government to do more to secure the country’s place in the top spot.
“The chancellor should issue a new generation of sustainability–linked government bonds which would tie interest payments to the country’s net zero targets,” SMR research director, Scott Corfe, explained.
“Not only would this support green financial services, but the prospect of financial penalties for missing net zero targets would strengthen the Government’s commitment to decarbonisation.”
There must also be a more consistent approach to carbon taxation, the SMF report continued, to ensure investors have stronger incentives to decarbonise portfolios.
Green finance represents a “significant economic opportunity” for the UK, the think tank urged, adding that around 200,000 jobs in finance and insurance are already classed as ‘green jobs’.