Ethical investor to skip U.K. green bond sale

Bloomberg - A veteran ethical investor plans to shun the U.K. s debut sale of green sovereign bonds.

Triodos Investment Management BV, part of a bank at the forefront for decades of sustainable finance will not buy the long-mooted debt offering this week, saying it isn't green enough. While the Dutch money manager has more stringent criteria than most, that hasn t stopped it from investing in other sovereign green bond sales from the likes of Italy, Germany and France.

The U.K. green bond framework is the first one we consider not to be green enough according to our standards, said William de Vries, Triodos director of impact equities and bonds, in an interview.

Triodos is concerned about the proceeds of the debt that are being used for carbon capture technology and so-called blue hydrogen. Both are integral to the U.K. government s plan to reduce emissions, with the nation planning to issue at least 15 billion dollars $21 billion in debt this fiscal year to finance such projects.

We have a serious problem with these types of projects because we don t think carbon capture projects will add to carbon reduction in the end, de Vries said.

Investment is pouring the deep carbon capture which involves burying carbon dioxide underground, yet it is controversial as it is unproven on a large scale and activists argue it could become a distraction from reducing emissions. Green hydrogen is produced from natural gas and captures byproduct carbon dioxide, whereas blue hydrogen is made of renewable sources through water.

Why Hydrogen is the best thing in green energy?

According to a U.K. investor presentation earlier this month, green gilts can finance both green and blue hydrogen. That may be a fillip to U.K. industry with Royal Dutch Shell Plc and BP plc - Mainstays of the FTSE 100 Index - among oil companies pursuing blue hydrogen.

The funding effort leaves Britain as a latecomer to the green bond market, with most western European countries including Ireland, Spain and Belgium selling such debts. While a boom in global sales looks set to bring ethical debt issuance toward 1 trillion this year, the deal in sterling remain a small fraction of that. Some market analysts expect the U.K. s broadcast to encourage more British issuers to join the UK.

The green gilt framework has been praised by other ethical investors, who welcomed its reporting requirements on the social benefits of green projects. De Vries also adopted the social element in vogue following the pandemic and liked other issuers to adopt similar mechanisms.

For Triodos, whose roots in sustainable investing go back to 1968 the problems over spending are on one level debilitable. It is now part of a growing breed of ethical investors who are, becoming more activist and focusing on driving change. They re rejecting assets that the broader universe of data-driven environmental, social and governance funds snap up. It leads to splits over what counts as a green investment, amid concerns over Greenwashing by some borrowers.

We had doubts and questions with other green bond frameworks, e.g. the Belgium one, but after consulting with them we decided to give them the benefit of doubt, said de Vries. The U.K's allocation of carbon capture technologies makes this impossible.