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The Green Finance Strategy can harness the FS industry’s power in transitioning to a low-carbon economy

Nick Pincott | Partner at law firm TLT
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19th July 2019
Nick Pincott TLT
"Not only does climate change present an existential risk, but also a monumental “financial risk” for the British economy."

The recent publication of the Green Finance Strategy, endorsed by both the BEIS and Treasury, confirms the Government’s commitment to achieving a low-carbon economy by 2050.

Most significantly, the UK’s financial services industry is singled out as a vital component of this transition. As the document rightly points out, the sector has the potential to position itself as the pre-eminent international centre for green finance.

Even so, the "wall of capital" for green projects is already here and for many, the real challenge lies in effectively marrying this capital with the correct projects. Consequently, the strategy is justified in calling for a durable, long-term policy plan to address these persistent issues and support greener (increasingly more consumer-led) investment- whether through green bonds, capital markets or institutional investors.

To this end, the Green Finance Institute will be pivotal to furthering the aims of the Government’s new strategy. By bringing together the private and public sector through the establishment of multi-stakeholder groups, the Institute can find and tackle obstacles separating important clean projects and the funding they require. To unlock the green economic potential in sectors such as Local Authorities and SMEs, catalysts such as this will be vital.

Of course, transitioning to a green economy presents potential challenges for business. In response however, the strategy highlights that the substantial opportunities (and societal imperative) outweigh any obstacles associated in achieving this goal. After all, not only does climate change present an existential risk, but also a monumental “financial risk” for the British economy.

The strategy also outlines how green finance can be achieved, beginning with "taxonomy"; that is, establishing distinct and pragmatic criteria for measuring the ‘greenness’ of business and investments. It is hoped that this will reinforce growing requirements for visibility and reporting, aiding stakeholders and credit rating agencies to measure the physical and transactional risks to an organisation stemming from climate change.

This latest plan outlines a bold but essential route for the UK and along with the Green Finance Institute, we are clearly headed in the right direction. As Theresa May steps down as Prime Minister at the end of the month however, it will soon be incumbent on either Boris Johnson or Jeremy Hunt to continue this momentum.

The aim of a carbon-neutral UK economy by 2050 is clearly a long-term strategy and will need to be embraced by future governments if it is to succeed. As the Green Finance Strategy recognises, the financial services sector is in the best position to support the fight against climate change and encourage subsidy-free, clean industries for subsequent generations.

 

 

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