In the context of the green recovery promised by UK government in its Green Finance Strategy and the UK’s ambitious targets to reduce its greenhouse gas emissions, the Treasury Committee published its report entitled “Net Zero and the Future of Green Finance” in time for Earth Day on 22 April 2021.
This report is part of an inquiry to examine the role of various stakeholders, in government and in the private sector, in working toward the UK government’s climate change commitments.
The report reviews the economic opportunities and costs of net zero, alongside green finance and how it can support decarbonisation, and the role of consumers and how they need to be protected through appropriate and evolving regulation.
It considers much of the progress made to date and the market response.
For the most part, this translates to a sense that more needs to be done and that there is a market appetite for faster progress to be made.
For instance, the UK has announced that it plans to issue a sovereign green bond this summer in a minimum amount of £15m, which is expected to lead the way towards unlocking the sterling green bond market.
However, the UK is already trailing behind Germany and France, who have already issued sovereign green debt.
The UK must not be left behind if it wants to remain impactful in green finance.
In addition, the Green Infrastructure Bank is largely touted as a positive move to increase investment in decarbonisation.
At this time though, the market is still eagerly awaiting the governance strategies that will determine how investments are made, which are due to be published later this spring.
There remains much optimism towards progress. After all, if the UK gets the strategies, incentives and regulation right, it would be a big win in terms of meeting climate-change targets and achieving economic recovery in the aftermath of the Covid-19 pandemic.
It is key for the UK financial markets to competitively attract green financing, including from international sources.
Protecting consumers
One obstacle relates to greenwashing, namely the labelling of financial products as “green” or “sustainable” when they are not.
Greenwashing poses a risk for consumers who invest in green financial products, but it also poses a reputational risk for banks and financial institutions who do not label their financial products clearly.
The FCA nominally controls the labelling of products, but its role is limited to confirming whether the financial product or fund “does what it says on the tin”, rather than assessing if a product or fund is truly “green” or “sustainable”.
In this regard, there will likely be a need for more regulation in due course to protect consumers.
Eco-labels have been discussed but are currently considered difficult to implement: there is not yet enough standardisation in the market to be able to compare like with like.
