As it shapes the UK economy to compete in the 21st century the UK Government has adopted five important domestic and international policy obligations whose delivery is dependent on expanding green finance.
Domestically, the Industrial Strategy is a key driver of future economic growth for the UK. Furthermore, the recently published Clean Growth Strategy and forthcoming 25-Year Environment Plan will identify further opportunities for investment. At a global level, the UK is a signatory to the 2016 Paris Agreement and the United Nations 2015 Sustainable Development Goals.
Access to reliable flows of low cost capital is essential if the Government’s policy obligations are to be met. The decision to the leave the European Union complicates the task of meeting them, not least because of a scaling back of access to the European Investment Bank and growth of competition from other financial centres in Europe. Solutions need to be sought both to manage risks to the UK economy but also seize the opportunities created by the delivery of these domestic and international obligations.
The transition to a green economy is a global challenge estimated to be worth tens of trillions of dollars over the coming decades and presents significant economic opportunities. As the Governor of the Bank of England Mark Carney has set out “By ensuring that capital flows finance long-term projects in countries where growth is most carbon intensive, financial stability can be promoted. By absorbing excess global saving, equilibrium interest rates can be raised and macroeconomic stability enhanced. And by allocating capital to green technologies, the prospects for an environmentally sustainable recovery in global growth will increase.”
The UK, and the City of London specifically, is already a hub for green finance. Expanding its competence and experience on green finance further to seize the opportunities the global transition to a green economy presents will enable both the UK and the City of London to develop a distinctive and competitive offer to investors everywhere. Building upon a groundswell in support from financial institutions for ‘greening’ finance catalysed by the work of the Bank of England, it will also ensure the UK can meet both its domestic and international policy obligations and deliver a successful Brexit process.
This briefing paper sets out fifteen steps to expanding green finance in the UK, falling under three headings: financial policy innovation to promote green finance; domestic infrastructure investment to expand green finance; green finance as a means to boost global trade.