The government’s “stop-start” approach to green policy is sending “mixed messages” to the the UK financial sector, which in turn risks scuppering much-needed investment in decarbonisation and nature protection projects in the UK, MPs on Parliament’s Environmental Audit Committee (EAC) have warned today.
In a report on the financial sector’s role in the UK’s net zero transition, the EAC warns the government’s current approach to green policymaking – which has seen it water down or delay a number of key net zero policies in recent months – risks slowing decarbonisation efforts, thereby potentially undoing key nature and climate pledges made two-years ago at COP26 in Glasgow.
As it stands, banks and financial firms are continuing to back fossil fuels to the tune of hundreds of billions of dollars worldwide through investments, loans and other financial mechanisms. In 2021 alone, global banks provided around $742bn in support for fossil fuels, outpacing backing for renewables, according to the report.
But to drive change and shift more of that fossil fuel financing towards the net zero transition, the EAC report said sustained government leadership and robust frameworks were needed, as relying on investor behaviour alone would not be enough to tackle the worsening climate and nature crises.
“Globally, banks continue to pump trillions of dollars into fossil fuels, and simply put, we are not turning the dial fast enough to tackle the climate and nature crises,” said the EAC’s chair, Conservative MP Philip Dunne. “Enormous strides have been made in the last few years to champion a low carbon economy, but we’re at risk of this good work stalling through complacency.”
Dunne called on the UK government to reassert its global leadership position on climate action and policy at the COP28 UN Climate Summit which takes place over the next fortnight in Dubai.
“The UK should be proud of its long-held position in front of the peloton, with other governments following its lead,” he said. “London is the number one financial centre for commitments to environmental improvements both directly in finance and across the wider economy. “But this alone is not enough. At COP26, the government made ambitious commitments to make even greater progress in embedding climate and nature into financial decision making.
“The government must turbocharge its efforts once again in green finance: it is an enormous opportunity to shape the carbon financial markets of the future, yet the market alone cannot revolutionise in the way needed. The government must not underestimate its own influence.”
Specifically, the report urges the government to publish quarterly reports detailing its move towards greater energy independence while staying on track to meet net zero, and recommends establishing an independent body be to track net zero and nature-related financial flows, as well as investment in high-carbon projects.
Further recommendations in the report include making climate transition plans mandatory for companies while effectively monitoring and evaluating their effectiveness, phasing in compulsory Taskforce on Nature-related Financial Disclosure (TNFD) guidelines over the next three to five year, and implementing a carbon border tax – or Carbon Border Adjustment Mechanism (CBAM) – as soon as possible to incentivise greener products and services in the UK.
Moreover, the report recommends changes to the government’s plans to encourage large firms to develop and publish climate transition plans over the coming years, warning that the current “comply or explain” approach favoured risks enabling firms to meet the requirements by simply officially disclosing that it does not have any such plan.
“The government should implement swiftly its initiatives on mandatory transition plans, a UK green taxonomy, and carbon leakage mitigation measures,” argued Dunne. “Any delay is likely to send mixed messages to the financial sector that the UK is wavering on its ambitions, as set out at COP26, to become the first net zero-aligned financial centre.”
However, in response to the report, the government argued the EAC had failed to recognise the UK’s “huge progress” in funding renewables under its watch, which it said amounted to almost £200bn low carbon investment in the UK since 2010. It also said it expected to secure a further £100bn investment in the low carbon economy expected by 2030, which it estimated could support up to 480,000 jobs.
“At this week’s Global Investment Summit, we also attracted nearly £30bn worth of commitments to invest in a range of projects including renewables production, grid capacity and heat pump manufacturing,” the government added in a statement. “We were the first major country to publish a green finance strategy in 2019, which we are using to further strengthen our leadership in green finance and provide the financial backing for our energy security, net zero and environmental targets.”
The report came amid separate research today by the British Chambers of Commerce (BCC) which found 40 per cent of the 1,000 UK companies it surveyed – mostly SMEs – still lack understanding of the UK’s net zero emissions target or what it means for their business and the economy. Similar research last year showed 61 per cent of firms were either not aware or had limited knowledge of the government’s targets.
BCC’s director general Shevaun Haviland said the survey findings should be a “huge reality check to politicians”, as she called for greater policy clarity and clearer net zero frameworks and strategies to support UK businesses.
“There is a huge challenge ahead to raise awareness in the business community about the UK’s 2050 net zero target,” she said. “Many firms are simply unaware of it, or have only a cursory understanding.
“Firms are calling out for a consistent net-zero framework that is clearly explained to them. The transition to net zero provides businesses with huge opportunities to grow and diversify. But awareness is key.”
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