Green Finance Strategy
Government sets goals for systemic change in financial services
At least 70% of banks in the UK now consider climate change as a financial risk, the UK government says in its first ever Green Finance Strategy, published by the Treasury this summer.
Green financial products are also increasingly becoming more widespread in the market. But much more needs to be done.
“Only 10% of banks in the UK are taking a long-term strategic approach to managing the financial risks from climate change, and the total global and domestic value of outstanding green bonds is only a fraction of the financing required,” the strategy states.
“And more needs to be done to ensure the physical and transition risks from climate change are fully taken into account so as not to undermine the future resilience of individual investments and the wider economy.”
Clock is ticking
With the UK committed to reaching net zero greenhouse gas emissions by 2050, and Scotland by 2045, the Green Finance Strategy sets out the government’s goals for systemic change in financial services.
The strategy’s two objectives are to align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by government action – and to strengthen the competitiveness of the UK financial sector.
This will involve, firstly, ‘greening finance’ by ensuring current and future financial risks and opportunities from climate and environmental factors are integrated into mainstream financial decision making, and that markets for green financial products are robust in nature.
Clean growth
Secondly, finance must be accelerated to support the delivery of the UK’s carbon targets and clean growth, resilience and environmental ambitions, as well as international objectives. The third strategic pillar is to ensure UK financial services capture the domestic and international commercial opportunities from this transition, such as climate-related data and analytics and new green financial products and services.
“The re-allocation of tens of trillions of dollars of capital towards green investment offers the potential to reshape cities, energy systems and land use around the world,” the strategy states. “The nature of this investment over the coming decades will determine the future of our climate, the natural world and the resilience of our communities. It also presents a substantial commercial opportunity for the UK financial sector.”
Progress report
By the end of 2020, the UK government will review progress on greening the UK’s financial system, including implementation of the recommendations of the Financial Stability Board’s private sector Task Force on Climate-related Financial Disclosures (TCFD). These address governance, strategy, risk management, metrics and targets, and include 11 recommended financial reporting disclosures.
The government confirms in its Green Finance Strategy that it expects all listed companies and large asset owners to be disclosing in line with the TCFD recommendations by 2022.
Also in 2022, the government will formally review progress against the aims and objectives of its Green Finance Strategy.
While the TCFD recommendations are voluntary, the UK parliament’s Environmental Audit Committee is calling for mandatory reporting of climate-related risks by 2022, on a “comply or explain” basis.
Committee Chair Mary Creagh said: “Climate change poses financial risks to a range of investments – from food and farming, to infrastructure, construction and insurance liability.
“We want to see mandatory climate risk reporting and a clarification in law that pension trustees have a duty to consider long term sustainability, not just short-term returns.”