In recent years, 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. During the same period, climate has become a mainstream financial issue, with one-third of global assets under management now covered by net zero commitments. There is a palpable appetite 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.
Through the Net Zero Strategy, the UK has a window of opportunity to set out a strategic approach that would provide the signals, direction, and capital necessary for mobilisation of financial flows at scale to meet UK policy goals. This could be followed by a more detailed National Financing Strategy in 2022, delivered as part of the planned review of the Green Finance Strategy. The appetite is there at scale from the private sector for a well-regulated global green finance hub – which the City of London is primed to meet.
E3G’s latest briefing makes the case for a UK Strategy to finance the transition, outlining the three key elements required to develop such a plan, and proposing recommendations for the public, private and international financing measures that should be contained within a UK Net Zero Financing Strategy.
Key elements of a UK Net Zero Financing Strategy include:
- Quantitative Needs Assessment: A strategic approach to climate finance will require a quantitative assessment of the UK’s financial needs for the climate transition. The upcoming Net Zero Review would be the landing point for this. This should be complemented with an assessment of the co-benefits of climate action such as improved air quality, sustainable infrastructure, and the creation of good quality green jobs.
- Mapping of existing tools and institutions: The UK has a mature financial ecosystem that was not designed to support the economic transition to net zero. It is now important to map the UK’s existing financial institutions and architecture and to identify where changes may be required, and where there are gaps.
- Comprehensive action plan: An action plan is needed which makes use of the government’s full toolbox – including public finance and economic management, institutional levers, financial standard-setting, private sector regulation, and a comprehensive diplomatic strategy. Used strategically and in combination, these tools can send the market signals needed to unlock private finance at scale. This will also create new markets and generate long-term returns in essential infrastructure such as green hydrogen, building retrofits, and nature.
A proactive approach to financing the UK transition will send signals to financial markets about their role in supporting the achievement of decarbonisation and resilience goals in the real economy. This will unlock the huge potential available globally of net zero capital for the UK’s transition.
The government should seize this unique moment and build a foundation now which will enable a better recovery and a future economy that is fair, prosperous, and resilient. Together with regular transparent monitoring, this can support a fair, levelled up transition and direct investment to the right projects, places and people.