‘A damp squib’: NGOs urge update of UK’s new Green Finance Strategy
The recently-published Green Finance Strategy “is missing any meaningful action on winding down financing for fossil fuel expansion” and needs updating if the Government wishes to call its net-zero plans credible.
That is the damning conclusion of a group of more than 30 academics, researchers and NGO representatives, who have today (6 April) written to Energy Security and Net-Zero Secretary Grant Shapps.
Their letter comes in response to the Green Finance Strategy update published last week by the Treasury and Department for Energy Security and Net-Zero. The update was the first since the UK’s inaugural strategy in this space launched in 2019.
Signatories of the letter do welcome several facets of the new strategy, including additional clarity on how the UK will measure whether it is achieving its ambition of becoming the world’s first net-zero financial centre. Also welcomed is the increasing focus on the importance of financing nature conservation and restoration in delivering net-zero.
However, their conclusion is that there are still multiple “urgent gaps in net-zero financing architecture”. While the Strategy sets out plans to scale up investment in cleantech and nature, the authors point out, there are no clear plans for scaling down finance for fossil fuel expansion. The letter makes the case for giving regulators statutory objectives for investing in line with the UK’s carbon budget and Paris Agreement objectives, plus imposing new duties on banks and pension funds to align with climate science.
The letter also argues that gaps remain in current approaches to corporate disclosures on environmental matters. It recommends that all large companies should be mandated to deliver net-zero transition plans, with no loopholes for them to explain why they have not been able to. A ‘comply or explain’ rule is currently in the works from the Government, and a mandate timeline not yet agreed. The Transition Plan Taskforce is advising firms to publish their first plan this year, then an update in 2026, but this is currently voluntary.
Building on the success of mandating climate-related risk reporting from corporates, introduced last April, the letter recommends that a similar mandate is introduced for nature-related risk once the Task Force on Nature-Related Financial Disclosures framework is finalised later this year. This mandate could then be built upon with a nature restoration plan mandate.
The UK Government first promised a taxonomy classifying which kinds of investment are considered ‘green’ in 2021, and the need for one has become increasingly clear as the EU has launched its own version.The UK’s taxonomy was originally due in December 2022 but has been delayed.
At the Budget last month, Chancellor Jeremy Hunt confirmed that nuclear power generation would be included in the taxonomy and classed as green. But the Strategy does not allocate labels to any other activities nor include a full taxonomy.
The new letter calls for a commitment that the taxonomy will be ‘science-based’ and that neither gas extraction, gas exploration or gas-fired power will be classed as ‘green’. It also urges biomass not to be classed as ‘green’.
Civil servants are, the Strategy states, still mulling the classification of certain activities. Also yet to be decided is whether the taxonomy will, like the EU’s version, include ‘transition’ activities. The UK’s new Strategy does notably include a vision for the UK to become “the best place in the world for raising transition capital”.
Signing the letter are representatives from WWF UK, Greenpeace UK, Positive Money, E3G, the New Economics Foundation, ShareAction, BankTrack, Make My Money Matter, Switch It Green, 350.org, the Finance Innovation Lab, the Wellbeing Economy Alliance and the Transparency Task Force. Also supporting are 20 academics from universities across the UK and EU.
Positive Money’s executive director Fran Boait said: “The Government’s ‘energy security day’ was a damp squib, and the Green Finance Strategy was no exception, showing just how out of touch this government is with households facing skyrocketing energy and food prices because of their addiction to oil and gas.
“Capital needs to move rapidly and at a colossal scale for us to have any hope of staying within 1.5C, and the government seems to think banks, asset managers and pension funds are going to wake up one morning and facilitate this shift voluntarily.
“A truly green strategy for the UK’s financial sector would not only incentivise sustainable investment but take responsible action to shift finance away from big polluters, including supporting the Bank of England to reflect the high risk of fossil fuel lending in its capital framework.”