Can the Financial Services and Markets Bill create net-zero opportunities for the UK?

This week, the most important piece of financial legislation to be passed in a generation is being scrutinised by a committee of MPs. Andy Briggs, chief executive of Phoenix Group looks at how this landmark bill could assist the UK’s net-zero transition.

Can the Financial Services and Markets Bill create net-zero opportunities for the UK?

The Financial Services and Markets Bill will rewrite financial law after our departure from the European Union and revise the financial regulators’ objectives for a generation.

This is a major opportunity to equip the UK’s financial services sector – which employs 2.3 million people across the UK and contributes £75bn in taxes to the Exchequer every year – with a regulatory framework that prioritises future growth in the economy, and protects policyholders.

It is also a significant opportunity to help the UK to transition to a low-carbon economy, and in doing so, bring huge benefits to the UK’s financial sector, its customers, and the UK economy.

The economic arguments for accelerating the transition to net zero are increasingly hard to refute. Globally, it has been estimated that the supply of goods and services to enable the net-zero transition could be worth £1trn to UK businesses by 2030 and 1.7 million new jobs could be created by the UK’s transition to net-zero. And the acceleration of decarbonisation we are seeing in economies around the world offers huge opportunities for the UK to grow low carbon sectors where we have competitive advantage.

More rapid decarbonisation of our economy is also well-aligned with the objective of delivering higher levels of growth for the UK – an alignment that is strengthened by the current energy crisis.  Accelerating the rollout of low-carbon technologies like home insulation and increasing the availability of renewable energy could reduce household bills by an average of £1,800 per year – freeing up consumer spending, stimulating growth in the economy, and helping deliver energy security.

And failure to act means we will have to meet the enormous physical costs of failing to tackle climate change – as well as the linked problem of nature loss, which could cost the global economy $2.7trn annually by 2030.

Tackling those challenges is, above all, a challenge of delivering capital investment – an estimated $32trn globally by 2030. The UK’s finance sector can play a leading role providing this investment – and can benefit from it too.

The Government has already shown leadership by committing to becoming the world’s first net-zero financial centre – but as it stands, the UK risks losing the green finance race to our financial competitors, who are poised to win the gold both metaphorically and literally.

The UK won’t lead the global green finance sector without the right regulatory framework to support it.

To stay ahead and stay competitive, we need the Financial Services and Markets Bill to introduce a new secondary objective requiring regulators to facilitate the alignment of the financial services sector with net zero, and the delivery of a nature-positive economy.

This would  help ensure investment is directed towards sustainable economic activities and the green growth that will be key to addressing our current economic challenges, while maximising value for our customers by investing in the growing sectors of the future.

It would unlock financial flows and deliver on what investors need to confidently fund the transition, including a transparent and trusted market that combats greenwashing, has standardised and clear metrics, and levels the playing field which rewards rather than penalises early action.

It would provide certainty too, about the direction of climate related disclosures, and unequivocal system-wide alignment to promote a smooth and early transition.

Underpinning all of this would be a sufficient legal basis for which the financial regulators and the Bank of England could take the initiative themselves.

The UK can promote all of this, and indeed must, in order to capitalise on the green transition, set world leading standards, promote those internationally, and realise its ambition to become the world’s first net-zero finance sector.

A new regulatory objective will ensure that it is firmly within the mandates of the financial regulators to protect our economy against climate and nature risks and protect investors from unfettered greenwash.

This decade is crucial for climate and nature. Now is the time to reassure investors that we can transform our economy and financial sector and unleash green growth to tackle the environmental and cost of living crises facing our economy.

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