11 Apr NGOs recommend radical changes to the UK’s new Green Finance Strategy
A group of academics, researchers and NGO representatives believe the recently published green finance strategy lacks decisive action on ending financing for fossil fuel expansion and requires adjusting if the Government wants to deliver a meaningful and credible net zero plan for the future.
The letter delivered to Energy Security and Net-Zero Secretary Grant Shapps comes in response to the Green Finance Strategy update by the Treasury and Department for Energy Security and Net Zero. Signatories of the letter welcomed several new measures in the strategy, including an added focus on how the UK will measure its goals of becoming the world’s first net-zero financial centre. Additionally, they welcomed the increased focus on financing nature conservation and restoration in achieving net zero.
The letter concludes, however, that there were still several critical areas within the net-zero financing area. While the strategy contains plans to scale investment in cleantech and nature, the authors highlight more plans are required to scale down finance for fossil fuel expansion. The letter highlights the case for providing regulators with statutory objectives for investing by the UK’s carbon budget and Paris Agreement targets and implementing new duties on banks and pension funds that align with climate action.
The letter also believes there are gaps in the existing approaches to corporate disclosures on environmental objectives. They recommend that all large businesses must focus on delivering net zero transition plans. The Transition Plan Taskforce has advised companies to publish their first plan this year, with an update in 2026, but presently, this is all voluntary.
Following the success of mandating climate-related risk reporting from businesses started last year, the letter recommends a similar mandate be used for nature-related risk once the TaskForce on Nature-Related Financial Disclosures framework completes later this year. The mandate could then be expanded to deliver a nature restoration plan mandate.
A green taxonomy for the UK
The UK Government promised a taxonomy determining the types of investment considered green in 2021, and the need for one has become clear, with the EU introducing its version. The UK taxonomy was anticipated for the end of 2022 but has been delayed. In the recent budget, Chancellor Jeremy Hunt confirmed nuclear energy would be within the taxonomy and would be classed as green, but the strategy doesn’t allocate labels to other activities or contain a complete taxonomy. The new letter calls for a more structured approach that is science-based and assures that gas extraction, exploration or gas-fired power will not be considered green. It also urges biomass not to be classified as green.
Further work is focusing on classifying various activities, and it is yet to confirm whether the taxonomy will follow a similar path to the EU version and include transition activities. The UK’s new strategy has a vision for the UK to become a global leader in raising transition capital. The letter contains representatives from WWF UK, Greenpeace UK, Positive Money, the Finance Innovation Lab and the New Economics Foundation, and many leading academics from UK and EU universities. Fran Boait, the executive director of Positive Money, explains that the Green Finance Strategy indicated how out of touch the government is with households experiencing escalating energy and food prices due to our overdependence on oil and gas.
Boait believes that capital needs to move quickly and at scale to enable us to stay within our climate targets and should anticipate a voluntary move by banks, asset managers and pension funds to facilitate this transition. An effective green strategy for the UK financial industry would incentivise sustainable investment, deliver decisive action to shift finance away from fossil fuels and support the Bank of England to highlight the risk of fossil fuel lending within its capital plans.
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