UK environmental audit body backs Green Investment Bank plan for green bonds issue

The UK parliament's Environmental Audit Committee has come out in support of the creation of a Green Investment Bank capable of issuing state-guaranteed green bonds to pay for the development of clean energy infrastructure. At the same time it has warned it might need to offer financially attractive terms to persuade institutional investors to buy them.
The proposal for the UK increasing its green bond issuance was tabled in June 2010 by the state-sponsored Green Investment Bank Commission under the former chairman of Merrill Lynch in Europe, Bob Wigley.

According to Wigley, the UK was falling behind the rest of Europe as regards meeting pledges to achieve a low carbon future and needed to act without delay, as concerns over climate change grow.

The Environmental Audit committee, reporting today said that the total funding might need to grow to £1 trillion over 20 years to enable the UK to fulfill its commitments for the supply of growing quantities of energy in an environmentally-sensitive fashion.

According to Wigley, if green bonds were used to pay for the first five years of expenditure on low carbon projects, this could require issuance of £265 billion, equivalent to 10 per cent of pension scheme assets.

Pension schemes say, unless a higher yield was promised to buy green bonds they would be loath to buy them as the market for them would be illiquid compared to the broader sovereign market.

Wigley discusses the important role of green bonds in funding low carbon development in much of his report, but he agrees that the market for the bonds need to be "deep enough and long-dated enough to provide sufficient liquidity."