Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

THE government’s green savings bond went on sale over the weekend, days before the start of COP26 climate conference in Glasgow.

Though their initial announcement prompted plenty of excitement, Friday’s unveiling of a lowly 0.65% fixed interest rate saw the bonds launch to a mixed reception.

What are green bonds?

Green bonds are a way for investors to use their money to support environmentally focussed programmes.

Like when you purchase any other bond, you are in effect lending money to a borrower. In this case, that borrower is the government. It will use the money raised by issuing the bonds to finance programmes which support its efforts to hit net-zero carbon emissions by 2050.

You, the lender, will be able to invest anywhere between £100 and £100,000 on a three-year fixed term, over the course of which you’ll receive a 0.65% annual interest payment on the anniversary of your account opening.

Watch Fidelity portfolio manager Kris Atkinson share some thoughts on the green bond:

Only 0.65%?

Yep. Unsurprisingly, that figure has underwhelmed.

Among the dissenting voices was Martin Lewis’, founder of MoneySavingExpert.com. He said: “The Chancellor must really hope that the nation is wearing green trousers as the rate being offered is pants.”

A 0.65% interest rate falls far short of other three-year fixed rate bonds, and only just matches the rate offered by many easy-access savings accounts, which allow holders to withdraw their money at any time.

Investors may take comfort from the fact that the bond’s issuer, NS&I, is backed by the UK and represents about as low a risk on a bond as you could hope for.

Yet the interest available on green bonds falls short even of government bonds, with three-year government debt now yielding around 0.68%. The prospect of rate rises in the near future is also likely to weigh on investors’ enthusiasm.

Clearly, return alone will not be enough to drive investors to this green bond. It will only appeal to people willing to sacrifice some return in order to support the government’s green agenda.

How will my money be used?

Green bonds help governments finance not only largescale infrastructure programmes - such as those that facilitate the shift away from fossil fuels and to renewable energy sources - but also to support initiatives that encourage more sustainable activity from consumers: building cleaner transport networks, for instance, or providing easier access to renewable heating.

As well as being the first G7 country to offer a green bond to retail investors, the UK is also the first to report the social “co-benefits” of expenditures financed by the green bond issuances. That means investors will hear about those benefits that go beyond the direct consequences of a more stable climate, for instance job creation and access to affordable infrastructure.

It will be interesting to see whether that’s enough to lure investors in, or whether returns remain front of their minds.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. The Investment Manager’s focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

Share this article

Latest articles

Watch: Market News Update - 16 May 2022

In this week’s market update: another down week for shares; bond markets catc…


Tom Stevenson

Tom Stevenson

Fidelity International

Market news today - Contrarians sense a turning point

What’s driving your investments this week?


Tom Stevenson

Tom Stevenson

Fidelity International

How to turn a profit in the post-Covid market

A bigger state and rising inflation means it really may be different this time


Tom Stevenson

Tom Stevenson

Fidelity International