HM Treasury and the UK Debt Management Office (DMO) published the UK government green financing framework, which describes how the UK government plans to finance expenditure through the issuance of green gilts and the retail Green Savings Bonds; these instruments are expected to be critical to addressing climate change and other environmental challenges, funding much-needed infrastructure investment, and creating green jobs across the UK. This framework sets out the basis for identification, selection, verification, and reporting of the green projects that are eligible for financing from the proceeds of the green gilt program and the retail Green Savings Bonds of the government.
The framework aligns with the 2021 International Capital Market Association (ICMA) green bond principles. In addition, HM Treasury intends to align this framework with the UK's developing classification of environmentally sustainable economic activities (UK Taxonomy). According to the framework, HM Treasury intends to allocate the proceeds raised from any green gilt, Green Savings Bonds, or other specified green finance instrument to finance and/or to refinance, in whole or in part, expenditures that meet the environmental eligibility criteria set out in this framework. The evaluation and selection of eligible green expenditure will be done annually by HM Treasury, in consultation with the other relevant government departments. HM Treasury will be responsible for updating the list of potential eligible green expenditure each year, spanning the eligible expenditure window. HM Treasury intends to allocate the proceeds of all green financing to eligible green expenditure within two budget years from the date the relevant green financing is raised.
To enable investors to follow the progress and positive impact delivered, HM Treasury intends to publish an annual allocation report on its eligible green expenditure and an at least biennial impact report setting out the environmental impact and social co-benefits. The two independent reports assessing the framework and the eligible government expenditure have been published alongside the framework:
- In line with market best practices, V.E, which is part of Moody’s Environmental, Social, and Governance (ESG) Solutions, has provided a Second Party Opinion on the sustainability credentials of the green financing framework; it assesses alignment of the framework with the green bond principles 2021 published by the International Capital Market Association (ICMA). V.E expressed a "robust" level of assurance on the contribution of the framework to sustainable development, which is the same positive assessment achieved by major sovereign issuers. V.E also assessed the UK’s ESG performance as "advanced," the highest level on V.E’s four-point scale.
- The Carbon Trust has produced a Pre-Issuance Impact Report on the green financing program, which reviews the government’s intended allocation of proceeds under the framework and the proposed impact metrics. They found that the allocations "align sensibly" with the Climate Change Committee’s recommended climate targets for the UK (known as its Sixth Carbon Budget) and they are "confident that the program will contribute to achieving net zero by 2050." This is the first report of its kind among sovereign issuers and provides additional evidence of the coherence of the government’s green financing program with its wider environmental agenda.
- Green Financing Framework (PDF)
- Second Party Opinion (PDF)
- Pre-Issuance Impact Report (PDF)
- Investor Presentation (PDF)
Keywords: Europe, UK, Banking, Insurance, Securities, Green Financing Framework, ESG, Climate Change Risk, Green Bonds, Reporting, Sustainable Finance, HM Treasury
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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