The Future of Green Finance in the UK: A Call for Stronger Policies

The UK Sustainable Investment and Finance Association (UKSIF) has recently released a report highlighting the potential for up to £100 billion in assets under management (AUM) to shift towards sustainable finance in the UK, contingent on the implementation of more favourable policies. This comes at a critical juncture for the UK, which has previously led the world in green finance but now faces the risk of losing its top position.

According to UKSIF’s findings, a significant majority of business decision-makers in the finance sector believe that the current lack of clear sustainability policy and regulation is hindering their investment efforts. Specifically, 69% of respondents cited uncertainty over sustainability policies as a barrier to investing in the UK. Moreover, 95% of large UK finance firms indicated they would increase their investment in sustainable projects if the government implemented more supportive green policies.

UKSIF’s report, based on a survey of 100 financial services organizations, revealed that these entities collectively manage around £200 billion in green investments in the UK. Despite 83% of these firms viewing the UK as their primary market for sustainable finance, 65% have already moved or plan to move investments to markets with more supportive sustainability frameworks. This trend underscores the urgent need for the UK government to adopt stronger policies to retain and attract sustainable investments.

The report identifies three critical areas for policy intervention. First, there is a need for a clear and world-leading sustainability disclosure regime. This includes adopting the International Sustainability Standards Board (ISSB) standards, mandatory corporate transition plans, and a UK green taxonomy. These measures are expected to provide the clarity and consistency necessary for investors to confidently allocate funds to sustainable projects.

Despite growing interest in responsible investing, the UK pensions sector faces uncertainty about which sustainability factors to consider, their relevance, and alignment with fiduciary duty. This ambiguity, particularly around climate risks and social issues, may prevent pension savers from benefiting from sustainable investment opportunities, crucial amid high inflation and inadequate retirement savings.

Therefore, the report calls for empowering investors by clarifying the fiduciary duty of pension schemes. This involves making it clear that considering environmental, social, and governance (ESG) factors is consistent with fiduciary duties. Clear guidelines from policymakers could help mitigate the current risk-averse culture among UK investors, fostering a more proactive approach to sustainable investments.

Lastly, the report emphasizes the need to embed biodiversity into the regulatory framework. To meet its commitment to halt nature loss by 2030, the UK must go beyond addressing climate change risks and focus on biodiversity. Incorporating the Taskforce on Nature-related Financial Disclosures (TNFD) framework into UK regulation could support financial services firms in managing the financial risks associated with biodiversity loss, aligning economic activities with environmental sustainability.

UKSIF CEO James Alexander highlighted the pivotal moment the UK faces. He stressed that inconsistent sustainability policies and a lack of detailed frameworks are deterring much-needed private capital from supporting the UK’s net-zero ambitions. Alexander urged the government to take decisive action to solidify the UK’s leadership in sustainable finance.

UKSIF’s report has garnered support from several organizations, including the Aldersgate Group, ShareAction, and Bankers for Net Zero. These endorsements reflect a broad consensus within the financial sector on the importance of stronger sustainability policies for ensuring the UK’s competitive edge in green finance.

In conclusion, the UKSIF report presents a compelling case for the UK government to implement more favourable policies to bolster sustainable finance. By addressing the identified policy gaps, the UK can attract substantial private investments, supporting its transition to a sustainable economy and maintaining its leadership in global green finance.