‘Green Day’: Revamped Green Finance Strategy offers ‘mixed bag’ of policies to boost investment and corporate disclosure
Updated Green Finance Strategy beefs up government’s plans to make the UK a net zero financial centre and create new markets for nature investment
The government has set out its stall for attracting billions of pounds of private investment into Britain’s expanding green economy while simultaneously combatting climate and nature-related financial risks, as it unveiled its today unveiled its refreshed Green Finance Strategy.
Published to coincide with the government’s ‘Green Day’ package of energy security and net zero policy announcements, the Green Finance Strategy aims to drumming up some of the £50bn to £60bn of annual capital investment the government estimates will be required over the next decade to put the UK on a pathway towards net zero emissions.
The 130-page Strategy expands on the government’s vision for the UK to become the “world’s first” Net Zero-aligned Financial Centre, while also ‘crowding in’ hundreds of millions of pounds of private sector into nature-based climate solutions.
In addition, plans unveiled today will see more firms and investors having to comply with climate risk and sustainability disclosure requirements, with the government set to consult later this year on extending these requirements to companies’ full supply chains and Scope 3 emissions.
A consultation is also planned this year on rules and interventions for supporting the development of “high integrity” voluntary carbon markets, in a bid to funnel more investment into nature-based solutions, the Green Finance Strategy states.
But perhaps most notably for investors, the Strategy confirms plans to consult on the UK’s first green taxonomy in autumn 2023, in a bid to establish a robust methodology for what constitutes a ‘green’ investment. The delayed consultation had previously been pencilled in for December last year.
The move follows in the footsteps of the EU, which unveiled its own green taxonomy last summer, controversially including fossil gas power and nuclear in its green investment criteria in a move that prompted accusations of ‘greenwashing’ from some quarters.
It remains to be seen whether some fossil gas projects could make the cut in the UK’s green taxonomy, although the government has already said nuclear projects will be included.
The government has been under intense pressure since the start of the year to respond to concerns the multi-billion dollar clean tech subsidy drive kick-started by the US Inflation Reduction Act risks pulling critical green investment away from the UK at a crucial moment in the net zero transition.
Green figures therefore welcomed the clarity today over the timeline for the UK’s green taxonomy, but voiced frustration over the delays to date and urged the government to accelerate the process as quickly as possible in order to avoid the UK falling behind in the global race for green investment.
Heather McKay, senior policy advisor for UK sustainable finance at green think tank E3G, described today’s updated Green Finance Strategy as a “marked improvement” on the previous 2019 iteration, but warned the pace of reform and proposed policies still fell short of what was needed.
“We’re also nearly four years on, four Prime Ministers later and four years closer to climate catastrophe,” she said. “The UK must move from consulting on promises to delivering results. 2023 will be a critical year for the UK to put its money where its mouth is on mobilising global green investment.”
Moreover, today’s Strategy indicates that when the UK green taxonomy does eventually emerge, it is likely to be a voluntary measure initially, in a departure from a previous commitment from the government that it would be a mandatory system.
“After the Taxonomy has been finalised, we will initially expect companies to report voluntarily against it for a period of at least two reporting years after which we will explore mandating disclosures,” the Strategy states.
David Croker, sustainability partner at PwC UK, warned that a voluntary system could lead to “inconsistent or incomplete reporting” that would make it “harder for financial market participants to assess the alignment of their own products to a common standard”.
“We’ll need to see the details of what is consulted on later this year, but a voluntary approach could result in some UK companies aligning to the EU taxonomy, or not complying with the taxonomy at all,” he said.
Nature markets plans
Elsewhere today, the government published a Nature Markets Framework setting out its approach to supporting and accelerating the growth of private sector biodiversity and nature protection projects, such as peatland restoration and tree planting.
The Framework includes plans to develop new rules to clarify how farmers and other land and coastal managers can access new markets to drum up investment in nature and climate projects.
The government has set a target to raise at least £500m in private finance to support nature’s recovery every year by 2027 in England, rising to more than £1bn a year by 2030, as part of its overarching goal to halt and reverse nature loss by the end of the decade.
Environment Secretary Thérèse Coffey said today’s announcement “sends a signal that the opportunities from investing in our farmland, forestry, peatlands and marine areas are great and offer long-term rewards for people and nature”.
“We need a healthy and thriving natural environment to meet our Net Zero goals and build our resilience to climate change,” she said.
In collaboration with the Environment Agency, four local authority projects across England have been handed £1m each as part of the Local Investment in Natural Capital programme aimed at testing “what works” in attracting investment into local priorities for nature, the government said.
These efforts come on top of the collaboration announced last week between the Department for the Environment, Food and Rural Affairs (Defra) and the British Standards Institution (BSI) aimed at developing a UK nature investment standards framework.
Tony Juniper, chair of Natural England, said setting stronger and clearer standards for nature investment could help to crowd in more private finance towards achieving economic benefits as well as supporting environmental targets.
“A healthy environment and a vibrant economy go hand in hand,” he said. “Green finance can unlock Nature’s solutions and help us meet a wide range of goals, from restoring clean water to promoting long term food security, and from resilience to climate change impacts to helping sustain public health.”
Corporate disclosure rules
Global efforts have been underway to develop a set of consistent standards for disclosing corporate and financial sustainability data – such as on climate, energy use, and other environmental data – under the auspices of the International Sustainability Standards Board (ISSB).
The ISSB is expected to finalise its full suite of disclosure standards this summer, and the UK government said today it would establish a framework to “assess these standards for their suitability for adoption in the UK” as soon as they are published. It also said it “remains committed” to introducing mandatory reporting against these standards in future.
Meanwhile, the UK’s Transition Plan Taskforce is expected to this summer publish its framework guidance for corporate net zero transition plans, which are also set to align with the ISSB’s guidelines.
Today, the government confirmed plans to consult later this year on introducing requirements for the UK’s largest companies to disclose their transition plans “if they have them”, adding that “any future obligations will only apply to the UK’s most economically significant entities – the vast majority of companies will not have additional burdens placed on them by these proposals”.
And finally, the government also today said it would launch a call for evidence on Scope 3 greenhouse gas emissions reporting during the third quarter of 2023 “to better understand the costs and benefits” of producing and using information on corporate value chain climate impacts.
Such a move will place further pressure on companies to measure the emissions generated through supply chains and customers’ use of products and services, as is already a requirement for companies looking to secure validation from the Science Based Targets initiative.
Nick Molho, executive director at the Aldersgate Group, said today’s Strategy marked “a positive step towards delivering the world’s first net zero-aligned financial centre in the UK” by “balancing strong ambition with a consideration for the needs of businesses to ensure compliance”.
“It is particularly encouraging to see plans to consult on a requirement for the UK’s largest companies to disclose their net zero transition plans, which is a vital measure to create a level playing field for business and ensure quality market information,” he said.
Overall, however, the Green Finance Strategy received a mixed response from many stakeholders, who welcomed progress compared to the previous 2019 iteration, but warned that fresh announcements today still risked leaving the UK falling behind in the global race to secure green investment.
Brendan Curran, policy fellow in sustainable finance at Grantham Research Institute on Climate Change and the Environment at LSE, said the Strategy had “failed to deliver a clear roadmap that will deliver the annal investment needed for net zero, lacks any additional money to support the transition and leaves us trailing behind the rest of the globe”.
“This strategy is a mixed bag overall and the UK government must take further action to ensure financial stability as climate change continues, provide financial regulators with a net zero statutory objective and ensure the Bank of England’s Climate Hub is sufficiently well-resourced,” he added.
