Enabling the net zero transition: the role of financial and related professional services

To meet the Paris Agreement target of limiting the global temperature rise to 1.5°C, global carbon emissions must be reduced by 45% by 2030. With carbon emissions continuing to rise globally, urgent action is needed.

While much attention has been paid to the need to raise climate finance from public sources, such as nation states and multilateral development banks, there has been less attention on how to raise private finance.

It is estimated that $125trn of investment is required globally to decarbonise the economy, of which $32trn is required by 2030 with about 70% of such investment needs to come from private finance. The financial and related professional services industry has significantly increased its support for net zero in recent years.

Whether it be mobilising capital to scale climate solutions, financing firms to transition to net zero, being active stewards to drive wider economy decarbonisation, accelerating the managed phase out of high emitting assets, or developing the data and methodologies required to make informed investment decisions, the industry’s contribution is on a scale that would have been deemed unimaginable only a few years ago. But the potential is bigger still.

Through research undertaken with financial and related professional services firms, the question this report attempts to answer is: how can the UK government realise the industry’s full potential as a catalyst to enable the transition further and faster?

The report identifies a number of barriers, risks and challenges that are currently preventing the financial and related professional services industry from scaling up its support. These include:

Pervasive policy, business and technological risks deterring investment

A lack of good quality data hindering the ability to assess and price climate-related risks and opportunities

The need for detailed policies to decarbonise the wider economy

Developing the power of carbon pricing through both mandatory cap and trade and providing confidence in voluntary carbon markets.

The report also identifies solutions. In particular, the need for clear and long-term policies to decarbonise the economy, an expansion of carbon pricing and the need to de-risk investments through blended finance. In finding solutions, the emphasis is very much on collaboration between the financial and related professional services industry, the wider economy, government, regulators and civil society. Only through such a partnership can the barriers be overcome, the opportunities realised and the investment scaled to support the net zero transition.

Based on the findings, TheCityUK has developed a 10 point action plan calling on the UK government to:

  • Deliver effective, quantified, detailed and long-term national net zero policies, incentives, and regulations for the wider 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.
  • Extend 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.