By David Milliken
LONDON (Reuters) - Britain will launch its first 'green' government bond next year, finance minister Rishi Sunak said on Monday, in a bid to capitalise on investor interest in assets designed to fund environmentally friendly spending.
The market for green bonds has expanded rapidly in recent years, reflecting the growth in investor demand for environmentally friendly assets, with about $250 billion sold globally last year, 3.5% of global bond issuance.
But Britain's Debt Management Office, an arm of the finance ministry, has been cautious about green bonds in the past as it was concerned investors might demand a higher return for bonds that are issued in small volumes and are less liquid.
Sunak's announcement marks a change of tack, as Britain prepares to host a major United Nations climate conference next year.
"This will be the first in a series of new issuances as we look to build out a green curve over the coming years," Sunak told parliament.
Germany, the euro zone's benchmark issuer of government debt, entered the market for the first time in September, selling 6.5 billion euros of 10-year debt, and plans a five-year bond for November.
Investors accepted a return 1 basis point lower than an equivalent conventional bond which the German government sold at the same time, to bolster their green credentials.
France and the Netherlands have issued similar bonds too.
The sector received a boost in September when European Commission President Ursula von der Leyen said 30% of the EU's 750 billion euro coronavirus recovery programme should be funded via green bonds.