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Update on the Green Finance Initiative

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Published: 22 Jul 2022

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The ICAEW Financial Services Faculty reports on the response to the BEIS update on the Green Finance Initiative.

In 2019 the UK government launched its Green Finance Strategy, setting out how it wanted to manage plans to green the financial system. 

Since the COP26 summit last year and the coordinated efforts of the Glasgow financial alliance on net zero (Gfanz) to launch the Green Finance Initiative, countries are rapidly forming and linking on green finance taxonomies.  

These are a set of standards and benchmarks to transition the global financial system towards Net Zero carbon emissions and its financing by 2050. 

Recently the Department for Business, Energy and Industrial Strategy (BEIS) called for responses on an update to the policy in May 2022. 

The ICAEW’s response to this call for information is set around four key points. 

  1. ICAEW recommends a fair and just transition. This means one that does not include resorting to fossil fuels as an answer to rocketing energy prices, while making energy affordable for consumers.
  2. The Government should commit to nature as well as climate – separating the two is a false distinction.
  3. Education and skills training are vitally important to achieve the transition.
  4. A change in the culture of the Financial Services sector to be realigned to meet the needs of the strategy, including revamping incentives to be more long-term and climate minded. 

“There is a lot on climate in the Green Finance Initiative, but we need to look at nature as well and make sure we are nature positive, as climate and nature are all part of the same world,” said Dipak Vashi, Sustainability Technical Manager, and author of the ICAEW response. 

“There is a lot of uncertainty. The German ministry are looking at firing up coal power stations, while climate change scepticism is running in the background of the UK political sphere, so we need to commit to a fair and just transition.  

“We need policy to make energy affordable but firing up the coal power stations is not the way because of the environmental damage. Doing so won’t pass a basic investment case because the longer-term impact is more damaging.” 

The submission has been made to BEIS and the department is expected to take between six to nine months to return on its summaries. Politically, it will depend on the leadership of the government in the short term, and in the medium term which government is in power across the 2020’s. 

“In terms of action, the work is there. The Dasgupta review is awesome, ground-breaking and no other government has done a nature-linked review like this before. However now it’s time to go further and implement the recommendations of the review,” said Vashi.  

“Our goal is to follow the Dasgupta review, there is nothing in there to disagree with – therefore it is time to act.” 

A key point is the convergence of key standards to align all financial services firms to a united goal, which is intrinsically linked to political direction.  

Part of this will sit on what happens with deregulation following Brexit for growth, and what the government wants to achieve with its green policies on making London the Green Financial Centre, and whether those two things are mutually beneficial.  

The update asked for opinions on the UK’s strengths in its green finance offering across various financial services, with some key highlights from the response below. 

Asset management 

ICAEW pointed out that green finance is worth $2 tn a year (less than 1% of all financial markets), with private investors expected to fund up to 85% of green finance projects.  

The asset management industry should be at the forefront of the strategy and should have regulatory freedom to explore new opportunities in green finance. 

Capital markets 

Mobilising significant quantities of private capital will be crucial in achieving the transition to a low-carbon economy, therefore sustainable markets are key. A developed capital markets ecosystem around green finance will allow investors to take on climate change while ensuring long term profitability.

There has been great innovation with green bonds, loans, and crowdfunding vehicles. Additionally, the UK is consulting on its prospectus regime for listing, so that information required by companies to list is not overly burdensome.  

Banking 

The highest-ranked banks in the world for cross-border lending have a presence in London, with innovation and expertise key. The ability to offer and aggregate all the services that the financial services industry needs is unparalleled. 

Insurance 

The UK has an established Insurance sector, proven to be innovative and dynamic, led by the centuries old and market-leading Lloyds of London centre.  

Professional services 

Professional services firms and individuals, such as Chartered Accountants, will have a vital role to play in ensuring the success of the strategy, said ICAEW.  

There is a deep pool of professional accountants present in the UK, with the requisite experience and skillset to more than play their part in delivery. A strategy as complex and technical as this will need thorough oversight and governance, to enable the various workstreams to stay on track and work towards agreed metrics. 

ICAEW note that regulators and standard setters across the world, such as the ISSB, SEC an EFRAG, are producing standards. We recommend that the UK Government continues to push for a single, aligned, global baseline. 

Fintech 

The UK is a global hub for Fintech start-ups, who are responsible for pioneering the financial models of tomorrow. 

There are plans to lead the digitisation of finance with a central bank digital currency taskforce, and the opening of a Centre for Finance, Innovation and Technology to boost growth.