Setting clear and consistent policies and regulations on decarbonising the wider economy will be the most effective way to unlock and stimulate UK leadership in green finance, according to a new report from TheCityUK and PwC .
An estimated $125trn of investment is required globally to decarbonise the economy, with over $32trn needed by 2030. Around 70% of this investment must be found through private financial markets. However, it has become clear that it will take more than voluntary commitments to make the necessary progress.
To help unlock this investment, TheCityUK and PwC have published ‘Enabling the net zero transition: the role of financial and related professional services,’ which sets out a 10-point action plan to enable government, regulators, and the industry to realise the opportunity presented by expanding UK-based green finance.
The report sets out the many risk factors across each sector which are preventing greater investment and capital from flowing to greener investment, including technological risk, business model risk, and policy risk. It then sets out how to address or reduce these risks to unlock the necessary investment.
Good examples of long-term, clear and detailed policy signals on how to achieve decarbonisation include phasing out new combustion engine cars by 2030, or gradually increasing the energy efficiency requirements from all residential rental properties in England and Wales.
Greater clarity is needed in other areas too. For example, on the government’s policies on nuclear, hydrogen, carbon capture and storage, and construction so that investors can better understand their business models and investment opportunities. These signals also need to be rolled out to more sectors and backed by detailed policy and implementing regulations. Regulations and financial incentives such as carbon pricing should be communicated to the private sector well in advance to support a smooth transition.
Voluntary actions and commitments are widespread, and good intentions have been codified in many places. The report lists 17 voluntary initiatives bringing together different financial service sectors to address the net zero challenge, but these cannot replace an effective regulatory environment and well-aligned financial incentives.
Miles Celic, Chief Executive Officer, TheCityUK, said, “Delivering the transition to net zero will take more than good intentions. It will require the government, regulators, and industry to work in close partnership. We all have our own role to play, and action by one cannot compensate for inaction by another. Financial regulations cannot substitute for government climate policies, and consumer spending choices cannot substitute for public and private investment. We are calling on the government to take forward a 10 point action plan to help unlock the vital investment needed to reach our net zero ambitions. We also need a clear and sustained cross-party commitment to net zero, with well-signalled policies to drive forward proactive decarbonisation across the whole economy.”
Jon Williams, Partner, PwC Global Banking & Capital Markets ESG leader and PwC UK Sustainability Chair, said: “There is a strong appetite in the UK to accelerate the reduction in carbon emissions as we move towards net zero, but we are not moving quickly enough. The required effort must come from everyone – from policymakers to business leaders and consumers themselves.
"Given the scale and influence of the UK’s financial & professional services sector, and the required level of investment and advice needed to support the transition to Net Zero, their role has never been more important.”
TheCityUK’s 10-point action plan calls on the UK government to:
- Deliver effective, quantified, detailed and long-term national net zero policies, incentives, and regulations for the real economy industries.
- Develop and publish interim national net-zero capital raising plans, to set out the UK’s investment needs to 2030/2035 and how it intends to raise the capital required.
- Address and share investment risks through the scaling of blended finance and other incentives.
- Facilitate deeper collaboration between policymakers, regulators, corporates and SMEs to scale up investment, address greenwashing and support the Just Transition.
- Continue to engage with other jurisdictions to drive global convergence and interoperability on sustainability disclosure and reporting standards, so that the UK as an international finance centre can build on its strengths to deliver green and sustainable investments in the UK and beyond.
- Improve disclosures by extending the scope of Taskforce on Climate-related Financial Disclosures and net zero transition plans to include smaller and privately owned businesses in a proportionate way, and ensure that the UK’s green taxonomy and Sustainability Disclosure Requirements distinguishes between green and transitioning activities.
- Seek to increase the level of disclosures for direct and indirect GHG emissions, as and when data availability and accuracy improves.
- Commit to producing an initial assessment of how markets are using climate-related data within its forthcoming update to its Green Finance Strategy.
- Further develop the role of carbon pricing through carbon and environmental credit markets, widening carbon cap and trade schemes appropriately, and working on an international carbon price floor.
- Establish a regulatory framework for carbon and environmental credit markets, to achieve transparency, environmental integrity, and standardisation of methodologies for carbon and environmental credit certification.