A “Green Day” - Mobilising green investment with a revised Green Finance Strategy

The UK Government published their revised Green Finance Strategy on 30 March 2023. This is the second Green Finance Strategy published by the government, the first being published in 2019.

On the "Green day", also published were 43 other documents comprising 2,840 pages including:

• Power up Britain
• Net Zero Growth plan
• Government response to the Skidmore Review
• Government response to the Climate Change Committee's 2022 progress report to Parliament
• 2030 Strategic Framework for Climate and Nature
• Nature Markets Framework
• International Climate Finance Strategy

Why have the Green Day documents been published?

The Government's previous Net-Zero strategy was determined by the high court as insufficient to meet the legal targets set by the Climate Change Act 2008.

The Climate Change Committee's 2022 progress report to Parliament also noted existing policy was insufficient for the Government to meet its carbon reduction targets.

Among the documents is the Government's formal response to Chris Skidmore's Mission Zero report published in January. In the response from Government, they respond to each of the 129 policy recommendations detailed in the Mission Zero report.

The subsidies and tax credits announced in the Inflation Reduction Act in the US have added pressure on other governments, including the UK, to announce economic incentives and levers to drive investment into energy security and climate technology.

The Green Finance Strategy

What is the purpose of the revised Green Finance Strategy?

The strategy paper sets out the UK Government's policy blueprint and approach to green finance that will be delivered by three government departments, HM Treasury, the Department for Energy Security and Net Zero and DEFRA.

The new strategy is a substantial update on its previous iteration, containing a large number of policy commitments, many of which are new but it also updates and adds further detail about its outstanding initiatives.

What are the objectives of the strategy?

The strategy sets out to:

• support the UK financial services industry in growth and competitiveness in a transitioning economy;
• drive additional private investment in the green economy;
• promote financial stability;
• incorporate nature and climate adaptation into the strategy; and
• align capital flows with climate and nature objectives.

Nature

There is a strong focus on climate but also a shift to prioritise nature preservation and biodiversity. This links with the upcoming Taskforce on Nature-based Financial Disclosures (TNFD) standard, which is due to be finalised in September and which many expect will be made mandatory for some UK companies.

Initiatives of most relevance to financial services:

• the strategy announces the long awaited consultation on the UK Green Taxonomy is to be published in Autumn 2023, with a proposal to include nuclear power but no announced proposal on the inclusion of natural gas. Reporting will be voluntary for the first two years after completion of the rules, but will then become mandatory for larger companies;
• an upcoming consultation on requiring larger companies to disclose their net zero transition plans, further to previous commitments in this area and the Transition Plan Task Force being launched;
• considering how to adopt the ISSB global reporting standards into the UK's Sustainability Disclosure Requirements (SDR) (expected summer 2023, notwithstanding the delay to the FCA's final SDR rules);
• a call for evidence is forthcoming on scope 3 emissions reporting, its costs and benefits;
• the development of climate adaptation metrics and guidance in 2024;
• the Government, FCA. FRC, and TPR will collaborate to review the regulatory framework for investor stewardship;
• the Government will consider whether to clarify fiduciary duty and will engage with industry;
• HM Treasury has published a consultation on bringing ESG ratings providers into FCA regulation and supervision. The regime would capture both UK and overseas firms that provide ESG ratings to users in the UK. The proposed regime would exclude asset managers' internal ESG scoring systems, ESG data that does not comprise an assessment of a company or an instrument's ESG characteristics, investment research, journalism and several other activities. The consultation will close on 30 June; and
• the UK's first Nature Markets Framework designed to develop investment in ecosystem services and providing new asset classes for investment, covering additionality, stacking, permeance and transparency.

The strategy document contains an array of additional proposals to develop green finance and provide public finance for the development of green technologies. The strategy document, along with the accompanying Net Zero Growth Plan and the Energy Security Plan contain information that is relevant to specific asset classes and sectors, including real estate, infrastructure, and technology.

For further updates on Green Day see the following quick read - Naturemarket sweep.