One of the first campaigning documents I ever wrote was on the need to issue bonds to finance green investment. It was then good to see this in the FT this week:
Large asset managers are urging the UK government to issue green sovereign bonds after politicians passed a historic motion to declare an environment and climate emergency.
Columbia Threadneedle, the £352bn investment group, has written to John Glen, the City minister, Michael Gove, the environment minister, and Robert Stheeman, head of the UK's Debt Management Office, calling on the government to issue “green gilts”.
“We believe there is significant appetite from pension funds, insurance groups, endowments and family offices across the globe, for investments that provide a financial return while supporting the [UN's] sustainable development goals,” wrote Simon Bond, director of responsible investment portfolio management at Columbia Threadneedle, in the letter sent on Wednesday.
“We encourage the government to consider addressing the climate emergency through green gilts issued to fund sustainable development projects.”
The views were echoed by Insight Investment, the UK's second-biggest fund manager by assets, which runs £648bn, mostly for pension funds. “There is demand [for green gilts] but a lack of supply,” said Joshua Kendall, senior environmental, social and governance analyst at Insight. “The government should be recognising this.”
It's taken some time, but now the finance sector realises that what we need are bonds to finance a Green New Deal. So why won't the government deliver what the market wants?
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Why bother with the bond markets don’t they act as an unnecessary constraint? Why not just print?
Because people want to save
And p[eople want to use those savings productively
And the net cost is near zero
And social tie in is secured
Why not then?
Net cost is zero?
That’s about the real rate of interest on U.K. bonds right now
Assuming they issue 10 year bonds, the real net cost is actually less than zero (10 Year Gilt yield is 1%, Annual RPI is 2.4%, whilst even CPI is 1.9%). Even 30 Year bonds would be a negative real yield.
But also a negative real return, so not an overly attractive investment proposition either. Unless people want to lose money ?
But people want these bonds
Rates of return are not what are driving people now
Sorry, you are saying that people want to lose money ?
They want security and to know that their money is being well used
These market makers know that people want to buy such products or they would not ask for them
“These market makers know that people want to buy such products or they would not ask for them”
This makes no sense. The people quoted were not market makers they were from the ethical/ socially responsible teams at a couple of institutions reflecting some on the mandates they run. To move that along to basically saying financial markets want these and they are not interested in making a real return is stretching the truth to breaking point !!!!
Why?
You do know vast numbers of bonds are now lapped up at negative rates, don’t you?
Why not ask what is really happening instead of living in your fantasy world?
Actually neither Threadneedle nor Insight are ‘market makers’. They are fund managers, a completely separate business.
You are correct that people might desire the bonds to be issued because the proceeds will be used to fund ‘Green’ projects, but the extract you quote from above would seem to indicate that a financial return is also important:
‘We believe there is significant appetite from pension funds, insurance groups, endowments and family offices across the globe, for investments that provide a financial return while supporting the [UN’s] sustainable development goals,”’
I’m not sure the financial return they envisage however is a negative one.
a) Pedant
b) I think you’re wrong
It is good however to see you supporting the fund management industry, a business you have condemned as superfluous and contrary to peoples interests in the past.
Am I supporting it?
I am noting its opinion
German bunds indeed do pay a negative interest rate not because investors are happy to lose money!…
the negative interest rate reflects the option premium investors are willing to pay to reflect the possible break up of the euro at which bond German bunds will translate to DM which will strengthen massively.. if everybody was 100% certain there was no risk of the euro imploding then euro debt would yield the same.
So, people accept a risk / price / earnings ratio?
Who knew?
I explained why bunds have a negative rate of interest
You replied….So, people accept a risk / price / earnings ratio?.Who knew?
I have no idea what you are talking about? Price/ earnings ratio in reference to bonds? It makes no sense.
I know you don’t get it
And it’s clear you never will
You are wasting my time
We all have our areas of expertise..it is clear that you are a “chancer” when it comes to financial markets and cover your lack of knowledge with bluster. On this thread I am sorry to say you are not making any sense.
I regret to say that if you are an expert it is in something that deliberately misunderstands humans
@ Arif 4:57
“The people quoted were not market makers, they were from the ethical/socially responsible teams reflecting some on the mandates they run”
Letting the mask slip here?
This practically states that the market makers are not ethical or socially responsible. Ok, so I inferred a little from your quote, but I would call this marginal interpolation.
TL;DR “market makers” now believe that ethics and social responsibility should be sneered at.
Arif et al. – just fuck off, we don’t need you any more
Johan – re market makers just pointing out that RM clearly doesn’t understand what he is saying. It’s akin to referring to a kookaburra ball in the context of Football.
And for pointing this out and disagreeing with some of the points made I get told to fuck off by you and accused by RM of being inhuman (or words to that effect)..and no doubt you both preach a tolerant society!!! Talk about letting the mask slip..
These people are market makers
They are trying to create a market in such bonds
That makes then market makers
You are playing technical pedantry
It is unappealing
Richard, I am not being pedantic I am being accurate. A market maker creates a market by offering to buy and sell.. no different to a second hand car dealer. Insight and Thredneedle are clients they might buy or sell but absolutely do not make a market. The distinction between the two is enormous.
You really should stop digging
I feel I have to hold my hand up and apologise for my rather crude comment. Probably shouldn’t make comment on politics after a trip to the pub.
It isn’t helpful to just tell people who have opposing views to f*ck off, so Arif, I do apologise. That was out of line on my part.
However, it still seems short sighted to disregard comment because it comes from teams with an ethical or social mandate. It feels to me that moves toward an ethical and social mode of working should be rallied around, not issued because it does not provide maximum monetary return. But then again, I have no skin in the money game…
On a slightly different tack, would (real) negative rate bonds act sort of as a pre-tax. I.e. private money is taken out of circulation, then government can pump significant amounts of cash in on projects that are needed. Then when the bonds mature, the money returned to private holders is (in real terms) less than the money that went in and helps stop overheating? People get a safe place to keep their money, crucial projects can be funded, and the “spectre” of hyperinflation need never raise its head? Is this about right?
And that doesn’t mention the improvement to the wider economy such spending might provide.
You should read “the environmental impact of pollution control” by Dr Paul Burrows. Paul was a lecturer in environmental economics at York University and wrote many many papers on the subject. He is a person who pioneered thinking in this area not someone who plays at it.
I am not sure what you are trying to say, but if the intent is to be rude, as it seems to be, it does not help your case
Ok Arif, I’ll bite. I searched for the paper you quoted on google scholar. No hits on first page. Care to provide a link?
It’s a book
They appear
If you are interested in scholarly articles by Dr Paul Burrows then i suggest:
Operational dumping and the pollution of the sea by oil: An evaluation of preventive measures.
Pigovian taxes, polluter subsidies, regulation, and the size of a polluting industry.
Torrey Canyon: a case study in accidental pollution
Controlling the monopolistic polluter: Nihilism or eclecticism?
and many more..
He has been one of the main academic thinkers on environmental economics since the late 70s.
Arif
Rate of return is not the sole investment criterion. Why do we have “ethical” investment managers? If, as a result of a Green New Deal, we have carbon and nuclear free power generation, many would consider that in itself to be a good return on their investment.
That thought has never occurrred to Arif
Only money counts to him
He will never understand anything else until shocked into it
And I feel really sorry for him until he does, I hope, realise how wrong he is
Richard you are making judgement on people without fair basis..the only basis is I correct your shortcomings.
You seem to feel that German bunds trading in negative yields is an open statement that financial markets are not looking for a real return., this is nonsense and I have explained the rationale behind why negative yields exist – you weren’t previously aware and now you are.
This shouldn’t make me a target for abuse but it has,
You have not explained why people want green investments and millions are happy with zero yield
Instead you said I know nothing
I should, perhaps, have deleted your comments instead of pointing out the lack of understanding in them
I suggest you start observing the real world
The reason Investors would own long dated bonds at a zero real return is they believe in terminal low inflation or deflation and interest rates falling further.If it was merely security then they would only own short dated bonds that carry the security but not the exposure to interest rate or inflation risk.
So there you..
You really, really do not get it
I do get it..
You say negative yields/ zero real yields are down to people wanting security – obviously some investors are regulated to own them to match liabilities others crave security. They can get get that without carrying inflation and interest rate rate by owning short dates bonds. If they own long dated then they choose to take on the inflation and interest rate risk so in both cases they must think it will fall. It is rational.
Negative yields in Germany is as above combined with the optionality if the collapse of the euro and conversion to DM.
You say investors want to do something socially responsible with there investment. Well owning gilts or treasuries outright might achieve this they also fund war and arms.
And yes there are funds and swhich are designed to be green / socially responsible and they are growing in size and are to be applauded. If you look at them as a proportion of funds under management at the likes of Thredneedle and Insight I estimate they might be 1%. That’s not to say they won’t grow as I am sure they will.
So like it or not the vast majority of investors, bond or equity take on risk to achieve a return. So I get the picture will complete clarity..
I am afraid you don’t
You assume rational people
As I said, try looking at the real world
Resonance, (www.resonance.ltd.uk ) the FCA regulated company I founded to raise money for the third sector has been doing this for years. The problem is that they are unbelievably hard to sell!
The problem is the hazard of agency. Whilst the public would invest, they trust their saving to agents who, do not have a moral compass, just a financial one. Even when the risk-reward is as good or better than regular products, they steer clear, possibly because they are worried that their reputation might be negatively affected if an impact investment goes wrong, when failure of a non-impact investment wouldn’t!
In spite of this Resonance now has £250M under management, all going into not-for-profit organisations, returning a regular risk-reward return. ( It should be £25Bn by now)
There has been a load of issuance of renewable energy closed ended equity investment funds which satisfy the green criteria in recent years;
Bluefield Solar Income – yielding 6%
Foresight Solar – yielding 5.5%
Gore St Energy Storage – yielding 3.5%
Greencoat Renewables- yielding 5.3%
Greencoat UK Wind – yielding 5.1%
Gresham house energy storage – yielding 4.4%
John Laing Enviromental assets – yielding 5.6%
Next Energy Solar – yielding 5.5%
Renewables Infrastructure Group – yielding 5.4%
SDCL Energy efficiency – yielding 4.7%
US Solar Fund – yielding 3%
All of these are listed on the LSE and have a combined market cap of around £7bn so are easy to buy for pension funds etc. Also Aquila European Renewables Income fund is about to be launched hoping to raise £300m with a target yield of around 5-6%
So investors can combine a good return with a green mandate and have been doing for years..
Those raising comment clearly think they do not meet their needs
I am well aware that there are concerns about many so-called green products
Who are those raising comment? You referring to insight and Thredneedle? If so they are competitor firms ie. all are fund managers and a fund manager rarely buys into another fund managers proposition. The funds listed are all run by highly specialised management teams and have compelling track records.
I am bored by this…