Latest news on the Green Finance Strategy Update

What was the consultation about?

The UK government published the consultation to support its update of the Green Finance Strategy, planned for publication in late 2022. The original Strategy published in July 2019 had three objectives:

1. Greening finance by supporting the financial services sector to align with the UK’s net zero commitment, the need to adapt to climate change and the UK’s commitment to nature’s recovery.
2. Financing green by mobilising private investment at scale to support clean and resilient growth.
3. Supporting financial services to capture the opportunity presented by the transition to a net zero and nature-positive economy, cementing UK leadership in green finance and ensuring that businesses can benefit

The aim of the consultation was to take stock of progress so far and set out how the UK can better ensure the financial services industry is supporting the UK’s energy security, climate and environmental objectives in the updated Green Finance Strategy.

Why is it important for businesses?

The review of the Green Finance Strategy is very timely. The business community is actively working on greening their operations and increasing sustainable finance flows. However, further policy clarity from the government is needed for UK corporates to successfully support the UK’s energy security, climate, and environmental objectives, while catalysing growth across the whole economy. The CBI has outlined some of our proposals on how to tackle this in our paper Financing the Transition to a Sustainable Future from October 2021

The updated strategy is expected to provide more clarity on opportunities for the UK when it comes to green finance, policies supporting the UK’s energy, security, climate and environmental objectives and, the regulatory environment for greening finance and, last but not least, international opportunities.

What did the CBI ask for?

This CBI’s extensive response builds on three guiding principles outlined in our 2021 paper and represents a broad consensus on sustainable finance across different industries. To successfully “finance green”, “green finance” and “lead internationally”, the government needs to:

1. Support the whole domestic economy transition with effective sectoral plans and mechanisms that can unlock critical sustainable finance flows.
2. Ensure appropriate policy frameworks and unambiguous regulation to allow the financial services sector to drive the growth of sustainable finance and avoid unintended consequences hindering the transition to a net zero economy.
3. Promote international convergence in sustainability and reporting standards to scale up ESG investments beyond the UK’s borders and ensure a smooth and just global transition.

Our response sets out a series of recommendations that will help the UK capture the opportunity, finance the UK’s energy security, climate and environmental objectives, green the financial system and lead internationally. Alongside these recommendations are several case studies.

Some of the recommendations worth highlighting include:

• The government needs to plug policy gaps in sectors such as housing and nuclear to increase policy certainty needed for investments.
• The government must recognise the role of transition finance and provide investors with further guidance on the role and trajectory of fossil fuels in the transition to a net zero
• To catalyse the flow of finance into these sectors, the government needs to develop financing mechanisms, including a revenue support model for hydrogen, and rely on guarantees to ensure that it is easier for private finance to effectively support low carbon technologies at scale
• Continue developing regulations announced in the Greening Finance Roadmap and at COP26 to enhance investor access to necessary information on sustainability performance of projects and companies. Make sure that different frameworks are rolled out in a coordinated matter and complement each other.
• Embed the concept of transition in policies and government communications to appropriately guide investment flows to sustainable projects and avoid unintended consequences.
• Make sure that national legislation is internationally minded by prioritising principles-based approaches and complementing them with specific guidelines to encourage international uptake of the UK’s regime

What’s next?

The updated version of the Green Finance Strategy is planned to be published in Autumn.  The CBI remains pugged in to BEIS and HMT to take your business insight and feed into the decision-making process.

If you’d like to read the whole response, please email Julia Jasinska.