Will NS&I Green Bonds help or hinder the growth of ESG?
Rishi Sunak’s second Budget as Chancellor confirmed the launch of new Green Bonds, to be made available through NS&I this summer.
Popular with savers who like the security of parking spare cash with the ‘official’ UK savings body, NS&I carries mass-market appeal.
Combined with the feel-good factor – Green Bonds are good for the planet, not just your piggybank – they will doubtless sell quickly.
It is also an easy way for the government to soak up some of that spare cash that has accumulated in lockdown, and direct it towards job-creating and environmentally friendly projects too.
Think war bonds for a woke, post-Covid Britain - Government will want to capitalise on this, meaning Green finance will literally be front page news.
What does this mean for ESG investing?
Firstly, will Green Bonds cannibalise the market for ESG funds? Perhaps at the margins, where some investors may see them as a convenient way to earn themselves some benevolence points in a low-risk way without changing their ISA or pension.
But in the main, although we’d expect NS&I to offer some form of reward for locking-in cash, it is likely still to be pretty modest. So while it may attract cash savers, it isn’t likely to appeal to investors.
Green bonds also seem likely to target domestic initiatives to help meet the UK’s carbon emissions targets. That leaves plenty of leeway for diversified ESG funds to talk up their global credentials.
In fact, far from getting in the way of ESG funds, their launch with NS&I could potentially lend some legitimacy to the idea of mixing finance with sustainable outcomes.
Our Sustainable Savers Census indicates there is a significant market for ethical a sustainable funds, but awareness is a major barrier to the growth.
Among those investors that told us they didn’t use ESG funds, 52% said they simply didn’t know enough about them. Similarly, less than a third of workplace pension holders said they were aware they could ask the pension provider for a sustainable portfolio. Green bonds could help address this by raising awareness that there are options available to socially conscious investors. This is a theme covered by Boring Money CEO in a piece for New Model Adviser
And High demand for the NS&I launch could also generate some investing FOMO - a powerful tool. There is expected to be limited supply of Green Bonds, potentially flushing out new savers and investors that didn’t know they wanted green savings and investment products until it gained some scarcity value.
If you want to know more about the scale of the sustainable savings and investment market and the investors that are interested in putting their money into ethical and sustainable solution, speak to us about our Sustainable Savers Census.