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16 July 2019updated 17 Jan 2024 7:13am

Could the UK’s financial sector become an unlikely ally for climate action?

New guidelines could impel the sector to start greening finance and financing green infrastructure. 

By Will Martindale

For environmentalists, global politics can feel like a lonely place. Recent headlines include Bolsonaro’s “huge rise in Amazon destruction”, the re-election of Australia’s “coal-clutching premier” and Trump’s disdain for climate action; “we have the cleanest air we’ve ever had”.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>But last week, environmentalists found an unlikely ally: the UK financial sector, which published its first Green Finance Strategy on 2 July.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>To help implement the strategy, the UK launched a Green Finance Institute, the City of London hosted a Green Finance Summit and UK financial regulators launched a joint statement on climate change. This is the first real example of the UK’s financial regulators seriously addressing climate change. And all this follows the UK’s world-leading commitment to net-zero carbon emissions by 2050.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>If that’s not enough, the London Stock Exchange recategorised oil and gas firms as “non-renewables”. Action to tackle climate change has become an unlikely legacy of the May government.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>The UK’s Green Finance Strategy can be understood in two ways: greening finance and financing green. The distinction sounds like a semantic move, but the two categories are different.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>Greening finance will ensure the current and future financial risks and opportunities from climate change become part of financial decision-making. Financing green is the acceleration of finance to support the delivery of the UK’s carbon targets and clean growth.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>A core part of “greening finance” is an expectation for companies and investors to report against the Task Force on Climate-related Financial Disclosures (TCFD) framework<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″> by 2022 at the latest. At the organisation I work for, the UN Principles for Responsible Investment<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″> (PRI), we’re finding that momentum on TCFD is growing. Over 500 investors representing $42trn in assets, including over 80 in the UK, are reporting to us on TCFD-based climate risk indicators. Yet implementation remains partial, especially on the important-but-tricky-to-do recommendations from the TCFD on forward looking analysis. Through improved corporate reporting, education and guidance, the UK government can reduce information barriers.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>On “financing green”, the UK government needs to go further still. A major gap is financing green infrastructure. The UK could also follow the French in issuing a sovereign green bond. Paris and Frankfurt present real competition in winning green capital.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>But most importantly, the test of the new Conservative government will be whether policy change is introduced to meet the strategy’s objectives.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>In 2006, former UN secretary-general, <span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>Kofi Annan launched the PRI at the New York Stock Exchange. Thirteen years on, it still stands ready to help, with <span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>most major investors having signed the PRI, requiring them to report annually on their responsible investment activities.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>We have access to the latest climate finance thinking across the investment community, and we’re headquartered on the City’s doorstep. Last week, our director of climate change gave evidence at a UK treasury select committee hearing on green finance.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>As an international organisation, we’re distinctly aware that substantial challenges remain. But unlike the US, Brazil and Australia, climate change policy in the UK largely transcends party politics.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>Earlier this year, atmospheric carbon levels passed 415ppm; the highest figure humankind has even known. With the Green Finance Strategy, the UK financial sector has an opportunity to lead the world on the transition to a low carbon economy. The Green Finance Strategy is just a start – but it’s a start to be proud of.

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<span style="font-size:10.0pt;
font-family:"Arial","sans-serif";color:#333333″>Will Martindale is Director of Policy and Research at the UN Principles for Responsible Investment. He tweets @WillJMartindale

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