21. August 2023

Green finance in the United Kingdom – Part 1

Loss of an important driving force in the EU

When it comes to green finance, the United Kingdom often sticks to the EU agenda, but also comes up with refreshingly different approaches. What can we learn from the country that claims global leadership in green finance? An approach in three parts.

The exit of the UK from the EU can also be seen as a loss in terms of sustainable finance. This is because the former member state – or rather the people representing it – often acted as a driving force for the topic. One example is the former British MEP Molly Scott Cato.

She was responsible for drafting the parliament’s position on the Final Report 2018 by the High-Level Expert Group on Sustainable Finance (HLEG). The published draft was ambitious: It largely supported the HLEG’s recommendations and contained additional demands. Many of these were incorporated into the position on sustainable finance adopted by the European Parliament and revitalised the debate.

In parallel to the EU activities, numerous national efforts were already underway in the UK to develop a corresponding agenda. The Clean Growth Strategy published by the UK government in October 2017 can be seen as the first of some important steps in the recent years. It announced the establishment of a Green Finance Taskforce and emphasised the need to support the development of green finance.

In January 2018, the UK government added a 25 Year Environmental Plan. It ties in directly with the Clean Growth Strategy. Green and climate finance play important roles. The Plan formulates the goal of harnessing private sector investment for clean growth in line with the Environmental Plan.

The first British strategy for green finance

In July 2019, prior to the official Brexit date on 1 February of the following year, the time had come: Titled Green Finance Strategy – Transforming Finance for a Greener Future, the UK presented its first strategy on the topic. It is based on the work of the Green Finance Taskforce, which was announced in the Clean Growth Strategy of 2017 and established in the meantime.

On the one hand, the strategy connects seamlessly with the aforementioned policy papers. This is because it consistently expands on the elements and narratives contained therein – for example, the UK’s claim to a global leadership role and emphasising the opportunities for economic growth associated with green finance as well as competitiveness and the economy. The latter becomes clear, among other things, through a direct reference to The UK’s Industrial Strategy.

On the other hand, new topics are emerging: The need for action in terms of transparency, frameworks and a common understanding of green finance is expressed. Also, the term taxonomy is mentioned. It is also striking that the potential for possible partnerships and cooperation with countries outside the EU, in particular with developing and emerging countries such as China, Mexico, Brazil and India, is highlighted.

With the Ten Point Plan for a Green Industrial Revolution from November 2020 – in which point 8 refers to investments in carbon capture, use and storage, and point 10 to green finance and innovation – and the Energy White Paper Powering our Net Zero Future presented a month later, the UK did not only take further steps on its green agenda, but was also preparing for COP 26, the annual global climate summit, which was held in Glasgow, Scotland, in autumn 2021.

Just in time for this major climate policy event, the UK government managed to derive a roadmap from its green finance strategy: In October 2021, it presented the policy paper Greening Finance: A Roadmap to Sustainable Investing. On 2 November 2021, the then finance minister and current Prime Minister Rishi Sunak furthered this with a paper describing how the UK is to become the world’s first net zero financial centre.

Green Finance Roadmap published in time for COP 26

While the declaration on the net zero financial centre should be understood in particular in the context of the Finance Day at COP 26, which itself was dedicated to the previously launched and now partly criticised Glasgow Financial Alliance for Net Zero, the roadmap provides for a comprehensive package of measures. These include disclosure requirements, a British green taxonomy and the goal of supporting global systemic change in the financial system.

GTAG proposals for a classification system to be developed

Specifically with a view to the UK’s green taxonomy, a Green Technical Advisory Group (GTAG) was established in 2021, even before the roadmap was published. It is led by Ingrid Holmes from the Green Finance Institute and members from the financial and real economy, science, civil society as well as environmental committees and has been and is primarily concerned with taxonomy issues. The working group has presented two reports to date, including Advice on the development of a UK Green Taxonomy in October 2022, which draws heavily on the EU taxonomy, and Promoting the international interoperability of a UK Green Taxonomy in February 2023.

Further advisory body on disclosure and labels

In addition to the GTAG, the Disclosures and Labels Advisory Group (DLAG) was set up in 2021 to advise the UK Financial Conduct Authority (FCA), which also chairs it. It consists of 15 members, including representatives of The British Standards Institution, PRI or ShareAction as well as observers from the government. The working group has already submitted recommendations that deserve closer scrutiny, particularly regarding proposed labels.

Part II of the blog posts on green finance in the UK will discuss proposals on how sustainable financial products can be categorised clearly and comprehensibly. The DLAG expert group presented an independent approach compared to the product categories under MiFID II and IDD as well as the traffic light model being discussed in Germany.

Gesa Vögele

Gesa Vögele

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