Banking & Finance

Last month, the UK Government launched its Green Finance Strategy. This focuses on ensuring private sector finance can be used to create clean, sustainable growth (with Government support where needed) and strengthening the competitiveness of the UK financial sector.

There are three arms to the strategy: Greening Finance; Financing Green; and Capturing the Opportunity.

Greening Finance

Greening Finance is about ensuring environmental factors are integrated as key factors in financial decision making.

A point made in a recent NGFS report is re-iterated in the Strategy: climate change is not solely a financial risk, but a risk with additional aspects. It therefore needs to be considered more broadly – something UK banks are generally not yet doing despite the majority now treating climate change as a financial risk.

Greening Finance recognises education is key to changing attitudes to climate change risk within financial institutions, and outlines actions the Government and other related bodies are taking in response.

Other aspects include commitments to clarify the roles and responsibilities of Government/financial sector bodies in taking forward the green agenda, co-ordinating approaches, and fostering transparency via work on financial disclosures.

Financing Green

Financing Green focuses on actions the Government is taking to encourage more green finance in the UK and internationally. This is crucial since matching up private sector finance to appropriate projects and technologies will help the UK and other countries meet their environmental objectives.

The key elements for Financing Green concern establishing appropriate long-term policies; improving access to finance for green investment; addressing market barriers and building capability; and developing innovative approaches.

Interesting aspects include the Government’s plan to place its 25 year Environment Plan on statutory footing and to work alongside the Green Finance Institute to address barriers to deployment of green capital into priority sectors.

Capturing the Opportunity

Capturing the Opportunity focuses on ensuring the UK is a global hub for green finance and leading the way on sustainable technology innovations. The Green Finance Initiative, which was launched in June 2018 and funded by the Government and The City of London Corporation, will play a key role in taking action to meeting the Government’s ambitions. The Green Finance Institute aims to bring together both public and private sector initiatives in the green finance sphere so it is ideally placed to contribute to the Green Finance Strategy.

Response

The Strategy is a step in the right direction to co-ordinating necessary actions to help drive green finance within the UK, and demonstrates there is considerable political will to ensure success. With a climate emergency declared in May 2019 by the UK Parliament (following the Scottish Parliament’s declaration in April), and the UK’s target to reach net zero greenhouse gas emissions by 2050, these actions (and more) are urgently needed. Inevitably, the Strategy could have gone further- including committing more public funding towards tackling identified issues rather than relying heavily on the private sector to align its finance with sustainable projects. However, it should build momentum for green finance in the UK and provide a spring board for further action.

Clare Devlin

Senior Solicitor at Brodies LLP
Clare is a senior solicitor in Brodies Banking and Finance team. She acts for a variety of lenders and borrowers, with a focus on energy and infrastructure. She has particular interests in green finance, renewable energy and carbon reduction.
Clare Devlin