River and Mercantile (R&M), an investment manager specialising in investment solutions and asset management, has participated in the UK government’s inaugural green gilt issuance, also known as a green UK government bond.
The Derivatives team at R&M will start to incorporate green gilts in client portfolios as part of the firm’s LDI strategy, based either on clients’ preferences as asset owners, or R&M’s own view.
Mark Davies, Managing Director, Derivatives at River and Mercantile, says: “As the manager of pension schemes’ liability hedges, we believe that green gilts offer pension schemes a potentially low-cost and simple governance approach to demonstrate a contribution towards meeting the Paris Agreement, as we know they will be directly invested into green projects.”
Ronan O’Riordan, Head of Business Development at River and Mercantile Solutions, adds: “Trustees should consider how green gilts might fit in with their schemes’ investment objectives, as well as their ESG objectives and beliefs. Large pension schemes need to report on climate risks from 2021, so trustees may consider that an investment in green gilts would fit well with management of their climate risks. It is a fantastic development for UK pension schemes to now be able to reflect their ESG beliefs in their Liability Hedging portfolios and we want to continue to work with our clients on ESG.”
It has been possible for R&M to participate in the green gilt issuance by swapping out of non-green gilts of a similar maturity. R&M only considered a switch under circumstances when the price difference was attractive enough but any “greenium” (reduction in yield of green gilts vs non-green) was small enough that the impact of the yield difference will be minimal at a total portfolio level.
