Events

LCAW | A Stitch In Time: Why the UK needs a plan to finance the transition

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The Chancellor visits wind turbine manufacturer Siemens Gamesa in Hull
The Chancellor visits wind turbine manufacturer Siemens Gamesa in Hull. Photo via HM Treasury on Flickr.
10:30 30 Jun 2021 Zoom Webinar

With COP26 fast approaching, the UK needs to turn words into actions when it comes to Green Finance Leadership. 

Watch the event

  

Key Takeaways: 

  • The Prime Minister and the Chancellor need to act now and put in place a plan for financing the transition. Because of the long-term nature of investments in Net Zero, and the importance of moving away from fossil intensive assets now, the Government must do this in a soon as possible time frame. 
  • The transition must be framed in terms of the opportunities, not of the costs. We need to think about the long-term profit, productivity, and environmental gains, and about the potential benefits to the Government’s levelling up agenda. 
  • Resilience shone out as a key theme from the panellists. Any strategic plan should integrate systemic resilience and physical risks. 
  • There was a clear recognition of the important role for the state in setting a strategy – with a very clear role for public policy.  
  • The possibilities are very strong, and the way forward for government is clear – with the following milestones approaching swiftly: the Net Zero Strategy, COP26, and the 2022 review of the Green Finance Strategy.  

Event Summary 

A stitch in time saves nine (and then some) when it comes to climate action – and nowhere is this more apparent than in mobilizing finance for the transition. A proactive approach can repair the damage of the market failure that is climate change, bake in future cost savings and spread the benefits of the transition across the whole of the UK. 

To date, the UK has announced a series of robust actions on green finance, including launching a new UK Green Taxonomy, green sovereign gilts, and a new National Infrastructure Bank. However, these actions do not amount to a plan for financing the transition.   

This London Climate Action event made a strong case for a strategic national approach to financing the transition, and featured contributions from an excellent panel of speakers including: 

  • Chris Stark, CEO, Climate Change Committee 
  • Dimitri Zenghelis, Senior Visiting Fellow, LSE Grantham Institute  
  • Ingrid Holmes, Executive Director, Green Finance Institute 
  • Steve Waygood, Chief Responsible Investment Officer, Aviva Investors 
  • Matt Scott, Senior Director, Climate and Resilience Hub, Willis Towers Watson 
  • Kate Levick, Associate Director, Sustainable Finance, E3G 

The panellists explored the specific fiscal and regulatory levers required to build back better, delivering capital to the right people, projects and places across the whole of the UK. There was violent agreement amongst the panellists on three key points: 

  • That it is time for the financing discussion and policy discussion to be brought together. 
  • That ‘difficult investment areas’ are only challenging due to discordant signals. 
  • That action from government on pulling together a plan would highlight the landscape of opportunities for the transition to the private sector, crowding in private capital for the transition. 

It was agreed that the Government has a window of opportunity with the Net Zero Strategy to weave a golden thread through these announcements, and create a plan which can provide the signals, direction, and capital to mobilise financial flows to meet its decarbonisation and resilience goals. With COP26 fast approaching, the UK needs to turn words into actions when it comes to Green Finance Leadership. Proactive action now will pay financial, social and environmental dividends in the long run. 

Panel Contributions 

Chris Stark, CEO of the Climate Change committee made a compelling case for proactive action on finance. He emphasized the need to frame the transition from an opportunity perspective, rather than a cost perspective. The opportunities for UK competitiveness far exceed the costs of the transition and acting swiftly and strategically will maximise the gains. Moreover, most of the investment for the transition will be private. However, unlocking this requires a public policy steer, saying that “The key message we should take to Glasgow is that public policy and investment must be brought together under a plan.” 

Dimitri Zenghelis, Senior Visiting Fellow at the Grantham Institute, LSE, emphasised the long-term economic benefits of sustainable investment, quoting the IMF’s data of a 2.5 dollar return for the economy for every 1 dollar invested in the transition. Dimitri also emphasised the Climate Change Committee’s findings: that while private finance will fund the bulk of the transition, key investment challenges are in highly regulated industries. Private investment does not own policy risk, so a policy steer is needed to unlock new investment areas. 

Ingrid Holmes, Executive Director of the Green Finance Institute, noted that climate is now a mainstream financial issue, and there is a palpable appetite from investors for the UK to become a global green finance hub. However, it is difficult for private investors to see the scale of UK opportunities without an overall plan. Ingrid articulated the value of a plan in shifting us from a ‘developing solutions’ position to ‘scaling up’ private finance for the transition. With appropriate mechanisms and cohesive signals, the Government can create appropriate risk-adjusted returns for private finance, and crowd in capital to key investment opportunities like the built environment.  

Matt Scott, Senior Director for the Climate Hub at Willis Towers Watson, emphasized the urgency for the Treasury to put in place a plan now, stating that “What is good for climate and resilience is increasingly good for finance”. He stated that to deal with the increased physical risks which are locked in for the next 20 years, the UK will need a strategy to set out a helpful framework to think through this, and to support the proper pricing of risk by private finance. For this, the Chancellor needs to act sooner rather than later. With the Green Finance strategy up for review next year, and the Net Zero Strategy anticipated pre-COP26, there is a clear timeline for interventions. 

The panel discussion ended with a rousing call for bold action now from Steve Waygood, Chief Responsible Investment Officer at Aviva Investors– not only on mandatory Net Zero plans and a requirement for FIs to grow their expertise, but for strategic thinking on global investments to be baked into the international architecture for finance. He noted that while a focus on risk minimization is a welcome framing up to a point, we must acknowledge that articulating the transition through a profit-motivated lens, and aligning incentives and costs, is critical to creating the transformational change necessary to deal with the world’s biggest market failure. This requires political will and leadership not seen since the Bretton woods agreement post-WW2 – something the UK is well placed to lead. 

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