The First Green Gilt to Finance the UK Green Investment Plans

Over the next years, the UK government is planning to step up its environmental and climate investments to support a sustainable recovery of the UK economy and to meet its climate targets. In line with its plans, the government has issued its first sovereign green bond. In this DBRS Morningstar commentary, we take a look at the UK government's plans for green infrastructure, highlight the main features of the first green gilt, and provide our views on how the overall public investment plan could support the long-term growth prospects of the UK (rated AA (high), Stable).

Key highlights:
-- DBRS Morningstar views favourably the UK government's economic plans, in particular the public investment strategy, which aims to improve productivity growth after a weak performance for several years.
-- Public investment directed to green infrastructure, largely focused on the electrification of transport and the expansion of renewable and low-carbon power generation, also aims to help the UK achieve its net zero emission target by 2050.
-- The scale of the public investment plans nevertheless could face potential operational risks, cost over runs and delays.

“Although it is early stages and there is still uncertainty in the current economic environment, we think that the investment plans of the UK government are likely to be favourable for the long-term growth prospects of the UK economy, especially if investment raises productivity growth. The scale of the public investment plans could face potential bottlenecks, but with the issuance of the first green gilt, the government is certainly moving ahead with its green investment plans” notes Adriana Alvarado, Vice President in the Global Sovereign Ratings Group.