It has been reported that Rishi Sunak is set to announce plans for £15bn green savings bonds, allowing people to invest in renewable energy projects such as wind and solar power.

Two tranches of green bonds are expected to be issued in 2021-22, with the first tranche expected to be worth about £7bn and will be issued in September, the newspaper said.

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Sunak will use a speech at Mansion House in the City of London to reveal details of the scheme, which is expected to be one of the biggest issues of green bonds in the world.

Becky O’Connor, head of pensions and savings at interactive investor, said: “Green NS&I bonds will potentially be the Holy Grail for savers who want to do their bit but do not want to put their money at risk, as these bonds will be backed by the Treasury.

“Research suggests that the majority of UK savers want their investments to consider people and the planet alongside profits.

“The green pension and investment movement is growing and while there are already some green savings accounts on the market, the introduction of a green product by NS&I, the UK’s most popular savings institution, will make green options truly mainstream.”

The money raised by the bonds will be used to help fund projects to tackle climate change, build infrastructure investment and create “green jobs” across the country.

O’Connor added: “But whether green will mean go for savers will all come down to the rates on offer. They need to be high enough to tempt people to green options, but not so high that NS&I is deluged.

“As with other savings accounts that currently pay far less than inflation, it’s unlikely that the green bonds will give savers a real rate of return that beats price rises. The hope is that they will at least compete with current best buys.”

The green bonds will be available through NS&I, the Treasury-backed savings organisation that also offers premium bonds. However, the interest rates for the British green bonds are yet to be decided.

Laith Khalaf, financial analyst at AJ Bell, commented: “The new NS&I bond the Chancellor is planning will give savers the option of a green home for their cash, but its success will likely be determined by the interest rate on offer. Savers showed they’re willing to vote with their feet when NS&I cut interest rates across a swathe of accounts last November, and if the green savings bond offers a paltry rate of interest, it might fail to ignite demand from the public.

“On the flip side, if the interest rate is too high, it will raise questions about the cost to the taxpayer, because the green savings bond is ultimately just government borrowing by another name. Savers won’t be investing directly in renewable energy projects, rather they’ll be lending money to the government to do so, in return for interest on their money.

“Of course, thanks to the Bank of England’s QE programme and ultra-low interest rates, the government can borrow money extremely cheaply, currently around 0.4% per annum for five years.

“Any premium offered by the green savings bond above prevailing gilt yields is effectively an extra burden for the taxpayer, and costs incurred in this way will naturally be weighed up against other fiscal decisions taken by the Chancellor to repair the nation’s finances in the wake of the pandemic.

Last November, chancellor Rishi Sunak announced that the UK will launch its inaugural “green sovereign bond” in 2021 to meet growing investor demand. Sunak said it would be the first in a series of new issuances as the government looked to build out a “green curve” over the coming years.

Khalaf added: “In theory a green NS&I bond is a great idea which will give consumers the option of an environmentally friendly savings account from a trusted provider. But the Treasury faces challenges in the design of the bond to ensure it hits the mark with savers, and at the same time doesn’t cost the taxpayer too much money.”

“Sunak is between a rock and a hard place here. If he hikes rates up for the green bond, he’ll face criticism for needlessly spending money when government borrowing is already sky high. If the Chancellor opts for fiscal prudence, it may be that the ability to save in a way that helps green causes, together with the security and brand of NS&I, is able to overcome any quibbles over the interest rates on offer.

“But with rising inflation a clear and present danger to cash returns, consumers may well be picky about the interest rate they get on their money, particularly if it’s locked away for the longer term.”

Global green bond issuance this year has passed 2020’s full-year volume of $247.5bn to set a new annual record before the first half ends, according to Refinitiv data, as China and the US compete for the title of most active market.

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