As part of the government’s recent raft of announcements made on ‘energy security day’ (also dubbed ‘green day’ by the press), it was revealed that the 2019 green finance strategy has been revamped to provide updated plans aimed at making the UK the world’s first ‘net-zero financial centre’. It sits alongside other publications launched to steer the country towards meeting its environmental and climate challenges. The other reports are Powering Up Britain, Nature Markets Framework, International Climate Finance Strategy and UK 2030 Strategic Framework for Climate and Nature.
The updated green finance strategy, now totalling 130 pages, assess the current green finance landscape and explores the potential pathways and investment requirements for a transition to net-zero finance. In the research, the government notes that national net zero targets now cover more than 90% of global GDP. Looking at the financial services sector specifically, they note the progress made through the foundation of the Glasgow Financial Alliance for Net Zero (GFANZ) set up in April 2021, ahead of COP26[i]. This scheme now unites more than 550 members across the financial sector and includes entities in more than 50 countries, representing 40% of global private financial assets in total[ii].
While the 2019 edition of the Green Finance Strategy focussed on planning and targets, the 2023 update is more heavily centred around delivering capital to finance the nation’s climate and nature goals. The strategy argues that the green transition is not only critical for the environment but is a significant growth opportunity for the United Kingdom- supplying the goods and services necessary to reach global net zero ambitions is estimated to be worth up to £1 trillion to UK businesses by 2030[iii]. The document notes that the private sector will play a crucial role in reaching net zero, with an additional £50-60 billion capital investment required each year up to the end of this decade. “This investment will support the sectors and technologies of the future, enable traditional sectors to adapt and thrive as part of the transition, and presents a significant opportunity to level up the UK, including those parts with an industrial heritage.”[iv]
To help facilitate green finance activity, the government is first proposing a UK Green Taxonomy- effectively a tool to provide investors with definitions of what can be labelled as green. As such, this will support the quality of standards, labels and disclosures used in the industry for green finance activity. Consultation on the Green Taxonomy is expected to begin in Autumn this year. There are also plans to consult on how Government can better support industry in its development and usage of innovative financial products as well as to help develop transition financing. As the strategy notes: “’transition finance’ refers to financial products and services that support higher emitting companies and activities to become green. These instruments are generally used by companies seeking to reduce greenhouse gas emissions and should be part of a credible decarbonisation pathway that is consistent with global climate goals.”[v]
In a nod to the need for green skills, the government also announced that it would revisit its Green Finance Education Charter, which launched in 2020. The goal of which was to upskill existing finance professionals for the net zero transition and attract new workers into green finance careers. The latest strategy document confirms that the Government will re-launch the Charter and rebrand it to ‘sustainable finance’ rather than ‘green finance’.
Also outlined in the latest green finance report is the need for nature-based finance and support for climate adaptation. As we noted in our blog earlier this month, globally, there is an urgent need for adaptation actions to safeguard those most at risk, given that between 3.3 and 3.6 billion people are already extremely vulnerable to climate change, according to the IPCC[vi]. In the UK, the government has set a legally binding target to halt the decline in domestic species abundance in England by 2030 and then increase abundance by at least 10% to exceed 2022 levels by 2042[vii]. Local governments in the UK are showing their dedication to climate adaptation. A recent study by the non-profit CDP found that of those local authorities who submitted information when asked, 77% were found to have a climate adaptation strategy, and 97% of them are putting that plan into practice.
To support private investment in natural capital, the government has now set a goal to mobilise at least £500 million of private finance per year into nature’s recovery in England by 2027, rising to more than £1 billion per year by 2030. They state in the green finance strategy that they expect this finance to be largely made up of “investment in nature-based solutions for carbon sequestration, flood risk management and water quality, as well as compensating for biodiversity and nutrient impacts (e.g. through Biodiversity Net Gain and Marine Net Gain).”[viii]
The release of the Green Finance Strategy has seen a mixed response from those within the green sector. Dr. Rhian-Mari Thomas, CEO of the Green Finance Institute, said:
"While the first Green Finance Strategy focused on planning and targets, this one is about delivering capital to finance our climate and nature goals. The Green Finance Institute's pioneering strategy of positioning finance as the enabler of sectoral transitions is recognised as key to achieving net zero. The Strategy sets out a step change in how the UK will mobilise the finance needed to limit catastrophic warming and catalyse investment into nature."[ix]
However, others have been critical of the measures, with some suggesting that the strategy is largely a rehash of previous ideas and commitments. Lewis Johnson from ShareAction said:
"Today's announcement is lacking the vision and ambition needed to align the financial sector with the government's own ambition of reaching net zero. We had hoped for something bold and visionary, but this amounts to little more than a restatement of existing commitments.”
Fran Boait, Executive Director of Positive Money, argued,
“Today's commitment to map and track investment in net zero by sector is a welcome step towards filling the gaping holes in the government's financing strategy. But further private sector engagement and information gathering is not going to be sufficient to shift capital at the speed required to keep temperatures to 1.5°C.”[x]
[i] COP26: Post-Conference Round Up | Zero Carbon Academy
[ii] Mobilising green investment: 2023 green finance strategy (publishing.service.gov.uk)
[iii] Ibid
[iv] Ibid
[v] Ibid
[vi] WGII Summary for Policymakers Headline Statements | Climate Change 2022: Impacts, Adaptation and Vulnerability (ipcc.ch)
[vii] Mobilising green investment: 2023 green finance strategy (publishing.service.gov.uk)
[viii] Ibid
[ix] Sustainable Investors react to new UK Green Finance Strategy (investmentweek.co.uk)
[x] Ibid
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
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