One of the core challenges of achieving a green economy is a lack of policy maker “buy in” across the policy spectrum. To date, green/environmental initiatives at the national level are led by Ministries of Environment and Energy. However, since countries have committed to the low carbon transition via their UN commitment to Nationally Determined Contributions (NDCs) and Sustainable Development Goals (SDGs) dynamics are changing.
With this heightened level of commitment, the proactive engagement by Finance Ministries is increasingly important. However, policymakers tasked with overseeing public spending and economic growth have had a puzzling lack of engagement. The low carbon transition is estimated to be worth tens of trillions of dollars over the coming decades. Leveraging the financial sector could relieve the burden on public purse. Plus, innovative and well-executed policy reforms to encourage low carbon finance can boost a country’s economic competitiveness and position it as a hub for green finance.
In this context, there is positive news coming out of the UK, as the Her Majesty’s Treasury (HM Treasury) and BEIS are co-hosting a Green Finance Task Force. The Green Finance Task Force aims to convene industry and government to find ways to accelerate the growth of green finance and help deliver the investment required to meet the UK’s carbon budget reduction. The Green Finance Taskforce has three months left to offer proposals on how to increase investment in the low-carbon economy.
HM Treasury sees the opportunity the low carbon transition presents. It will create new high value jobs and build a technologically advanced sector of the economy. Seizing this opportunity requires two steps. First, effective engagement with the financial sector to build understanding of how government and the private sector can work together to achieve the UK’s carbon budget and increase investment in infrastructure. This will lower the requirement for government expenditures. Second, boosting the Green Economy to increase the UK’s competitiveness and improve productivity throughout UK industry. The UK is already a major player in green technology and a market leader in key growth areas such as offshore wind. Leveraging this established industry expertise with the backing of the financial sector and supportive policy making would yield significant results.
The UK is well positioned as a green finance hub. The UK is already a global banking centre and home to one of the longest standing and largest insurance markets globally. Moreover, an often overlooked, but vital element to any programme to develop innovative financial products, is an experienced financial regulator. The Bank of England is one of the most experienced and forward-looking regulators globally.
Another key feature of the Green Finance Taskforce is its effort to engage not only the finance sector, but also a wide range of stakeholders in the debate. Whereas other countries, such as Luxembourg and France, have launched initiatives to boost green finance these have generally been focussed on banks, fund managers and other financial players. Instead, the UK initiative aims to involve all relevant parties, from property developers to retailers, manufacturers and civil society in a process with government and the financial sector to determine what is required to achieve the low carbon transition.
This broader approach is critical as the barriers to achieving the low carbon transition are not cleanly delineated. For example, it would be a mistake to assume improving energy efficiency is a matter of providing the right incentives. Instead, to deliver meaningful change it is imperative to understand each participant in the sector, from homeowners through to the construction industry and finance providers. Nonetheless, the government plays a crucial role in influencing all players to increase uptake. Arriving at such an integrated solution for incentivising the green economy without engaging all stakeholders would likely be an incredibly circuitous process.
Furthermore, greening the economy will not be a single leap, but instead a process with a degree of trial and error. Without the engagement of all stakeholders, devising a path to a low carbon future would be haphazard, or at worst impossible.
The UK has differentiated itself by its effort to engage industry as a whole while also tackling market failures and incentives. Of course, finance will play a key role in enabling the low carbon transition, but ultimately it will be industry and policy makers who deliver it. The UK is entering an exciting new phase, and the active engagement of key government bodies with both the finance sector and industry suggests that it could yield a range of proactive moves to generate a real impact in moving towards a low carbon future.