Net Zero Strategy: Build Back Greener – green investment
In advance of COP26 the UK Government has published its Net Zero strategy. Entitled 'Build Back Greener' it contains an ambitious 10 point plan for a "green industrial revolution". Green Investment is a corner stone of this plan with the Government stating its desired aim to lead the world in green finance.
The government recognises that a mixture of both public and private investment will be crucial for any path to net zero. The strategy recognises that the bulk of investment in relation to net zero will come from the private sector and that as such the government needs to work closely with them to deliver "a world-leading net zero financial system."
The government recognises that regulatory frameworks will need to be amended to embed climate related financial risk to help provide investors with the climate related financial exposure data they need in order to increase capital flows to green investments. Green investment can only increase if there is more disclosure and transparency in the financial markets on climate risks and opportunities. The government hopes to drive this transparency through the introduction of Sustainability Disclosure Requirements, as outlined in the paper 'Greening Finance: A Roadmap to Sustainable Investing'. The Sustainability Disclosure Requirements bring together and streamline UK sustainability reporting requirements, including reporting aligned with the Taskforce for Climate-Related Financial Disclosures (TCFD) recommendations and UK Green Taxonomy disclosures.
Other key initiatives proposed by the government in relation to green investment include:
- Working with the UK Infrastructure Bank (UKIB) to crowd in private investment as a cornerstone investor or guarantor to enable more than £40 billion of investment in the areas most prone to market failure (infrastructure etc.) and to help deliver its dual policy focus of tackling climate change and supporting regional and local economic growth. The government intends the UKIB to play a pivotal role in catalysing the role of local government by financing strategic infrastructure projects led by local authorities and providing advice and expertise in order to strengthen the pipeline of investable projects.
- Development of a Taskforce on Nature-Related Financial Disclosures (TNFD). This will provide a framework for corporate and financial institutions to report and act on evolving nature-related risks to support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes. This market-led, global initiative will build, consult on, and test, its framework over the next two years and will be designed to complement the TCFD.
- Continuing to issue green gilts with a second issuance planned in mid-to-late October, as the UK looks to build out a green yield curve. The proceeds of green gilts will be used to help tackle climate change, biodiversity loss and other environmental challenges.
- Developing a UK Green Taxonomy and creating the Green Technical Advisory Group to advise on greenwashing and how to implement the taxonomy in a UK context.
- An Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme is being introduced to provide a revenue mechanism to enable deployment of industrial carbon capture and hydrogen production.
- Assisting industries to transition away from high carbon emitting operations through the use of UK Export Finance (UKEF)’s Transition Export Development Guarantees (TEDG). TEDG was launched in 2020, will ensure that businesses, including those in the supply chain, are supported at all stages of their transition journey. This product can be used by a company for working capital, capital expenditure or R&D needs, provided they have a credible transition plan.
- The introduction of the Natural Environment Investment Readiness Fund (NEIRF) to help nature-based projects become investment ready and provide capital through public-private impact funds such as the Big Nature Impact Fund to leverage in private finance.
- Using a mix of public and private sector funding to support new net zero carbon technologies as they move from the innovation stage through to commercialisation and deployment. Early-stage R&D is supported by various government grants. Later-stage organisations can reach commercialisation and benefit from investment through the Clean Growth Venture Capital (VC) Fund or support from the British Business Bank (BBB). The government has also invested £20 million in the Clean Growth Fund. This fund aims to accelerate the deployment of innovative clean technologies that reduce greenhouse gas emissions, alongside catalysing the UK clean growth venture capital market and leveraging private sector funding into early stage clean tech start-ups.
- National Savings and Investments (NS&I) will issue retail Green Savings Bonds later in 2021. These bonds will be the first standalone retail product to be tied to a sovereign’s green bond framework and will allow all UK savers to contribute to the fight against climate change and the government’s other environmental objectives.
The government plans to publish an update to the green finance strategy in 2022 which will include a net zero transition pathway for the UK financial sector.