Right on the Money: Low risk ways to finance climate action

When we think about using money to tackle the climate crisis, our minds often jump to investments. For example; divesting from fossil fuels, investing in renewable energy, or backing community projects.

But some of the biggest flows of capital are low-risk investments or cash and increasingly, even these are being reshaped by the climate transition.

One example you may have seen in the news recently is the UK government’s latest issuance of a “green gilt” which raises billions to fund climate-related spending.

So what exactly is a green gilt? And can “safe” investments really make a meaningful difference?

What is a green gilt?

At its simplest, a gilt is just a loan to the UK government.

Investors lend money, receive a fixed rate of interest (the “coupon”), and get their money back at a set date in the future. Gilts are generally seen as very low risk because the UK government has a long track record of meeting its obligations.

A green gilt works in exactly the same way but with one key difference. The money raised is earmarked for environmental projects.

Under the UK’s Green Financing Programme, this includes areas such as renewable energy, clean transport, energy efficiency, nature and biodiversity and climate adaptation.

In other words, instead of funding general government spending, these bonds are intended to support the transition to a lower-carbon economy.

The UK first issued green gilts in 2021, attracting huge investor demand, and has since raised tens of billions of pounds this way.   

Are they really making a difference?

On the face of it, green gilts sound like an easy win because it is a low-risk way of investing, backed by government and funding climate solutions.

They help direct large-scale capital into things like rail infrastructure, flood defences, and renewable energy. These are exactly the kinds of projects that underpin a “net zero” economy (i.e. an economy that is aiming, on a net basis, to generate zero carbon emissions).

They also come with a degree of transparency. The government commits to reporting on where the money goes and what impact it has, which isn’t always the case in the wider investment world.

Green gilts don’t fund new projects directly in the way a community energy scheme might. Instead, they contribute to overall government spending that meets certain environmental criteria.

The role of “low-risk” investments

Why does this matter? Because a huge proportion of our savings are invested in assets like government bonds.

Traditionally, these have been seen as the “safe” part of a portfolio. Not exciting, not especially impactful but steady and reliable.  Green gilts challenge that idea.

They show that even the most cautious parts of the financial system can be nudged towards supporting climate goals.

This is significant for large institutional investors like pension funds, insurers, charities. Small shifts in asset allocation at that level can move billions.

What about individuals?

For most individuals, investing directly in green gilts isn’t straightforward.

They’re primarily bought and sold in large amounts by institutional investors, though they may sit behind the scenes in pension funds or investment portfolios.

But there are a couple of related options worth being aware of.

One is green savings products, such as those offered through National Savings & Investments, where your money is similarly used to support government environmental spending.

Another is simply asking a broader question: what is the “low-risk” part of my money actually doing?

If you have a pension or investments, there’s a good chance a portion is held in bonds, and increasingly, providers are starting to include green gilts within these allocations.

Not all “safe” money is neutral

It’s easy to assume that low-risk investments are somehow neutral and that they don’t really influence the world one way or another but that’s not true. Government bonds fund public spending. Corporate bonds fund businesses. Bank deposits support lending.

Even the most cautious financial choices still play a role in shaping the economy.

Green gilts are one example of how that influence can be steered more positively, even if imperfectly.

In short…

For those looking to align their finances with their climate values, green gilts are best seen as a starting point rather than an end point.

They offer stability, transparency and a clear link to environmental spending.

But they don’t replace the need for more direct, higher-impact forms of investment whether that’s renewable energy projects, community initiatives, or innovative climate solutions.

For now, the key takeaway is this: even the “boring” parts of our financial system are beginning to change. While they may not grab headlines, they quietly influence where vast amounts of money flow and what kind of future that money helps to build.