Time was when saving money meant picking an account offering the highest rate of interest. But as people have woken up to the gravity of the climate crisis, many are now opting for “green” financial products that prioritise their cash being put to use for the environment, funding projects designed to cut greenhouse gases and creating a cleaner, greener, more sustainable society.
A sign that green finance had entered the mainstream came in the spring budget, when chancellor Rishi Sunak announced new Green Savings Bonds would be made available through NS&I, the state-owned savings provider that brings you Premium Bonds. The budget announcement described Green Savings Bonds as giving “UK savers the opportunity to take part in the collective effort to tackle climate change”.
This involves people investing their money – between £100 and £100,000 – at a fixed rate for three years, with funds held by HM Treasury and used to finance projects designed to help the UK meet its net zero 2050 target. These include making transport cleaner; prioritising renewable energy over fossil fuels; preventing pollution; improving energy efficiency; forest planting and conservation work; and spending on flood defences and early warning systems in response to climate breakdown.
“We are proud to be offering Green Savings Bonds on behalf of the government. Green Savings Bonds will offer savers the chance to contribute towards the UK’s green agenda and support six key areas to help make our environment greener, cleaner and more sustainable,” says NS&I chief executive Ian Ackerley. “As well as helping the environment, savers will see a fixed return on their investment and will also benefit from NS&I’s 100% security on all capital invested.
“Green Savings Bonds will be on sale for at least three months, giving savers ample opportunity to invest and the bonds will be available to purchase and manage online.”
The new bond will obviously appeal to those who want their savings to be a force for environmental good, and is appropriate for those who do not need to access their funds for several years – their money will be held for the bond’s three-year term. Savers must be over the age of 16. The interest rate is 0.65% gross/AER pa*.
NS&I retail director Jill Waters says the organisation is expecting Green Savings Bonds to be popular with younger people, who are looking both to save and to make a positive impact on the environment.
“Our research found about one-third of people aged between 25 and 44 would be very interested in the concept of a green savings product,” says Waters. “It also suits a broad range of people looking to set aside money and knowing their savings will be supporting green initiatives.”
There is evidence elsewhere of a growing consumer demand for financial products of this sort. Impact investing has become the buzz term among savers who are increasingly looking to align their money with their values. Greater numbers of savers and investors are seeking funds and financial products that operate ethically and sustainably. Investors are also increasingly looking to align their financial decisions with their values. Indeed, UK retail investors put £11.7bn into responsible investment funds [pdf] last year, according to the Investment Association [pdf].
“Finance is crucial to deliver the projects we need to tackle climate change and create green jobs,” a Treasury spokesperson said. “That’s why we’re making the UK the best place in the world for sustainable investment, with improved company climate disclosures and initiatives like the UK Infrastructure Bank, which will spur investment from the private sector.”
As well as launching the UK Infrastructure Bank this summer, which will invest to support regional economic growth and net zero emission goals, the government also created its first “green gilt” for institutional investors. The first two issuances in September and October attracted record-breaking demand and raised a total of £16bn to fund green initiatives.
Meanwhile, the big banks are lining up to create more sustainability-focused products for retail customers. These range from so-called green mortgages, which offer lower interest rates to borrowers who buy more energy-efficient homes or who retrofit properties to save more energy, through to car financing plans for the purchase of electric vehicles. Elsewhere, SMEs can show their environmental credentials by taking out green loans to fund sustainable activities.
Fintech is also responding to the growing demand for green, sustainable finance, continuing to develop consumer-facing apps that enable customers to engage with and influence how their money is managed. More green-is-good offerings from mainstream and mould-breaking financial providers are set to launch or are currently being devised, giving eco-minded savers ever more choice.
What is evident is consumers will be instrumental in the “greening” of finance. More than 60% of all the measures identified by the Committee on Climate Change (CCC) in its Net Zero report [pdf] as being essential to achieving net zero emissions involve some degree of change from consumers. How people decide to use and invest their money will be key.
Find out more at nsandi.com
*Gross/AER definitions
1 AER stands for Annual Equivalent Rate and enables the comparison of interest rates from different financial institutions and across different products on a like-for-like basis. It shows what the notional annual rate would be if interest was compounded each time it was credited or paid out. Where interest is credited once a year, the rate quoted and the AER will be the same.
2 Gross is the taxable rate of interest without the deduction of UK income tax
