How the financial sector can support climate change action

At the CBI’s Achieving net-zero conference, Sarah Breeden (Bank of England), Ian Simm (Impax Asset Management) and Sir Adrian Montague (The CityUK Leadership Council) spoke about how the financial sector can support corporate action on climate change. The session also focused on how businesses are responding to the twin challenges of climate change and the pandemic; as well as how corporate action can help to deliver a step-change in low-carbon investment and building resilience to future threats.

Breaking down ‘build back better’

The government has outlined its aim to ‘build back better’ following the pandemic. The panellists agreed this is an ambitious and important objective, and that government needs to work with the business community on turning this objective in to more concrete plans. This could mean ensuring that net-zero is at the centre of thinking about how the UK adapts to swathes of people working from home and the return to work, how to revive our towns and cities due to the impact of COVID-19 and how the UK gets used to this new way of working. Learning the lessons of the pandemic and applying these to climate change is important. Ian Simm said that climate change has similar characteristics to the pandemic, and that the shock caused by COVID-19 should be a wake-up call for climate action. Sir Adrian Montague remarked that the social contract has changed because of the pandemic, particularly given the contribution of the public sector during this month.

As the government sets the rules and frameworks for businesses to operate in, it has the opportunity to put in place policies that will help create more energy and water efficient homes; a national charging network that will support the mass uptake of electric vehicles; continuing the rapid expansion of low-carbon power supplies; and delivering investment in technologies lie carbon capture and storage and hydrogen to help decarbonise heavy industry.

The importance of planning

The COVID-19 pandemic has been a clear signal to the financial sector about the importance of supporting investment in resilient, low-carbon infrastructure and businesses. In order to mitigate the effects of climate change, our panellists encouraged businesses to make a plan to tackle the physical and transitional risks their business faces over the coming decades, outlining what actions they need to take now to drive their own operations to net-zero and what support they will need. We need to overlay our decarbonisation targets across a variety of sectors from the built environment through to agriculture, which will help the highest emitting and hardest to decarbonise sectors transition.

Sarah Breeden said that regulators such as the Bank of England aim to make sure that every decision in the financial system takes climate change into account. To achieve this, the Bank of England will make sure that banks and insurers know that it is their responsibility to manage climate change risks to the system, while working collaboratively with businesses to try and develop the methodologies and data sets to help them understand the future risks to drive change.

The opportunities for the UK

Despite the significant challenge of transitioning to a low-carbon economy, there are multiple opportunities. There is a debate about how we pay for the transition, but Ian Simm noted that there is a “wall of capital that is looking for long-term stable returns” and we have an opportunity to tie our 30-year ambitions to this market demand.

Due to the changes in infrastructure that will be required, a major skills programme will be needed and there will be opportunities for the UK to build its industrial and manufacturing capacity. The government will need to work with the business community to scale up the technologies the UK already has, and additionally the technologies and further innovation that will be needed through the medium, and long-term.

As the UK hosts COP26 next year, there will naturally be a spotlight on what steps we are taking to address climate change and achieve our own net-zero target. The UK is well placed to show leadership on this, with the UK being a prominent centre for scientific research globally and having the potential to create new centres for new technologies such as hydrogen.