Investment bodies react to new UK Green Finance Strategy

The UK government has released a new green finance strategy today (30 March), as part of a wider ream of green policies in what's been dubbed ‘Green Day' in recent weeks. 

Noteworthy from today's bundle are the launch of a consultation into future regulation of ESG ratings providers, a framework for scaling nature-based investment markets, further detail on the net-zero-aligned Financial Centre framework and the ISSB assessment and endorsement process. Further commitments to release a UK Green Taxonomy in Autumn 2023 and a Call for Evidence on Scope 3 disclosures "later this year" were also announced.

Investment Week sister title Sustainable Investment has rounded up all the key reactions from across the sector.

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The regulators

Nikhil Rathi, chief executive officer of the Financial Conduct Authority said:

"We welcome this updated Green Finance Strategy, which represents an important milestone, building on collective efforts to date and setting out a clear plan for the future. We are working hard to ensure that the UK market is well positioned to support the transition to net zero. We're playing our part in delivering a world-leading framework for transition plan disclosures through our collaboration with the UK Transition Plan Taskforce.

"We're putting the right information in the hands of investors by working closely with the International Sustainability Standards Board. And we're continuing our work to help consumers through product labelling. We look forward to continuing to work closely with government and regulators to support the delivery of the Green Finance Strategy."

Charles Counsell, chief executive of The Pensions Regulator said:

"We welcome the updated Green Finance Strategy and its renewed focus on climate change, which will remain a core financial risk for some time to come. If not properly managed, climate-related risks can have a negative impact on scheme investments, funding, and employer covenants, leaving some savers poorer in retirement.

"It is crucial that trustees effectively manage material climate-related risks and opportunities for savers, and we will keep our focus on tackling poor standards of governance and risk management in pensions. TPR will continue to work closely with the government and other financial regulators to ensure that we are joined-up in our efforts to address these challenges for pension schemes."

Sir Jonathan Thompson, chief executive officer of the Financial Reporting Council said:

"We all need to play our part in the net-zero transition and ensure that the economy is resilient and prepared for managing climate-related risks. As the regulator for company reporting and audit, the FRC will continue to hold organisations to account for transparent disclosures on their plans and actions to address climate risks and opportunities.

"Reliable information, free from greenwashing, and subject to high-quality assurance is critical both to public trust and the effective functioning of capital markets and the success of the Green Finance Strategy. We look forward to continuing our collaboration with other regulators in support of the UK's ambitions."

Andrew Bailey, governor of the Bank of England said:

"Climate change affects our planet, our economy and our financial system. It is undeniably relevant to the Bank of England and the objectives it is tasked to meet. We are working to ensure that the macroeconomy, the financial system, and the Bank of England itself are resilient to the risks from climate change and support the transition to net zero.

"We therefore welcome, and are proud to have contributed to, the UK Government's updated Green Finance Strategy - a strategy that will help to deliver the cross-economy transition that will be required to meet net zero."

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The industry bodies

Dr. Rhian-Mari Thomas, CEO of the Green Finance Institute, said:

"While the first Green Finance Strategy focused on planning and targets, this one is about delivering capital to finance our climate and nature goals. The Green Finance Institute's pioneering strategy of positioning finance as the enabler of sectoral transitions is recognised as key to achieving net zero. The Strategy sets out a step change in how the UK will mobilise the finance needed to limit catastrophic warming and catalyse investment into nature."

"Today's announcement broadens our mandate to work with government and the market to accelerate the mobilisation of capital to restore and protect nature as well as to decarbonise critical sectors, alongside well-designed long-term policy. Going forward, we will help develop innovative approaches to deploying government capital to crowd in private finance, maximising impact, and value for money. This is the only coherent pathway to economic growth and net zero, and the GFI is delighted to be a partner to the Government in this process."

David Postings, chief executive of UK Finance said: 

"The banking and finance sector fully supports the government's goal of net zero UK emissions by 2050 and is committed to a just transition. We welcome the government's commitment to investment in the UK's energy independence and hope this package can be used to deliver green growth up and down the country." 

"Providing a clearer path to net zero and mobilising investment through the Green Finance Strategy is crucial to enable the banking and finance industry to help deliver a just transition to a more sustainable economy. We have long called for further steps to green the housing stock and welcome the government's pledge to increase energy efficiency as part of the Great British Insulation Scheme." 

James Alexander, chief executive at the UK Sustainable Investment and Finance Association (UKSIF), said:

"Today's update provides some much-needed clarity for our members on the future direction of travel of the UK's sustainable finance regulatory framework. We see further certainty provided on a range of regulatory initiatives that could help promote investor confidence and support the UK's climate objectives.

"This includes recommitting to delivery of a ‘green taxonomy', a consultation on climate transition plans for large listed and private companies, steps to promote international interoperability of rules through an assessment of the ISSB's standards, and a clearer framework for how the UK can become the world's first net-zero financial centre. We hope to see further, crucial policy detail outlined as soon as possible in the upcoming consultations on many of these areas which we have worked closely on in recent months, and are committed to working constructively with government and wider stakeholders.

"Separately, it is very welcome to see consideration given by government to clarification to fiduciary duty. We are optimistic that this could help address the present confusion we see among pension schemes and more widely, and how environmental, social, and governance (ESG) risks, opportunities, and impacts should be considered as part of these duties. We look forward to contributing towards this important work, and hope that this clarification, in time, could help to unlock capital flows in the wider economy."

Fran Boait, executive director of Positive Money, said: 

"Today's commitment to map and track investment in net zero by sector is a welcome step towards filling the gaping holes in the government's financing strategy. But further private sector engagement and information gathering is not going to be sufficient to shift capital at the speed required to keep temperatures to 1.5°C.

"Despite the government's spin, levels of public investment in net zero are falling far short of what is required. In a higher-interest-rate environment, the government and the Bank of England should also be using targeted lending schemes to ensure critical green investment is not impaired by the higher cost of capital.

"What is absent from this strategy is a plan to wind down financing of fossil fuels and other environmentally destructive activities. The government is right to emphasise that climate change poses profound risks to financial stability, which is why it is concerning that the Bank of England is stalling on reflecting the high risk of fossil fuel lending in its capital frameworks."

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Lewis Johnson from ShareAction said:

 "Today's announcement is lacking the vision and ambition needed to align the financial sector with the government's own ambition of reaching net zero. We had hoped for something bold and visionary, but this amounts to little more than a restatement of existing commitments.   

"One step in the right direction is the government's acknowledgement that pension scheme trustees' fiduciary duties must be reviewed, and to work with the FCA, FRC and TPR to review the regulatory framework for stewardship.  

"Pension savers deserve to know that the people in charge of their money take a comprehensive view of their best interests, considering the full environmental and social impacts of their investments. We will work with the government to ensure that fiduciary duty is reformed in law to better reflect savers' long-term best interests and sustainability preferences.  

"The strategy is right to say that reliable, transparent information is vital to align the financial sector with the UK's climate commitments. However, the headline announcement on transparency is merely a commitment to ‘consult on the introduction of requirements for the UK's biggest companies to publish their transition plans if they have them. What's more, the consultation will assume such requirements may reflect the existing ‘comply or explain' basis used by the FCA. This is not enough - we need robust, mandatory net-zero transition plans now so market participants can accurately assess performance and risk.  

 "It is also vital that the government introduces a science-based green taxonomy as soon as possible. We welcome the commitment to consulting on the taxonomy in Autumn, but given this consultation has already been delayed it is disappointing that the timeline isn't more specific. We cannot afford any further delays to its introduction. Meanwhile, the consultation launched today on regulating ESG ratings providers is a positive step to guarantee standards in this somewhat ‘wild west' area of the market.  

"Ultimately we need a complete transformation in how our financial system operates if we are to tackle the climate crisis. While this strategy includes some positives - notably the acknowledgement that fiduciary duty needs to be reviewed  - overall it is a missed opportunity to take the bold action we need." 

Sian Barnett Wike is deputy editor of Sustainable Investment

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