With the new green gilt issuance, the UK DMO shows commitment to green financing instruments, accounting now for almost 3.6% of total gilts (excluding index-linked bonds).
The new gilt is issued under an updated financing framework which has added nuclear projects to the eligible expenditure, indicating a shift in the market stance towards nuclear power since the first framework was published in 2021. But it may be seen as controversial by some investors.
Historically, clean transportation was responsible for the highest share of expenditures, and it will likely remain the largest category based on investor updates.
A precise analysis of the ‘greenium’ in the gilt market is challenging as there are no directly comparable twin bonds. Looking at current market pricing, we found little signs of differentiated pricing in the secondary market. However, in the primary market, it is reported that earlier green gilts were priced with positive greenium. This difference ultimately is what impacts funding costs for borrowers, and can support greater issuance.
