Create net-zero development bank to spur post-Brexit low-carbon transition, MPs urge

By creating a National Investment Bank with an explicit net-zero mandate, Ministers could reap the benefits of the UK's Brexit transition period, Covid-19 recovery planning and low-carbon transition simultaneously, MPs, economists and local leaders are urging.

Create net-zero development bank to spur post-Brexit low-carbon transition, MPs urge

The call to action is being made through a new report from the London School of Economics and University of Leeds, produced in association with the All-Party Parliamentary Group (APPG) on Sustainable Finance, UK100 and HSBC.

The report assesses how UK policymakers can engage the financial sector to make good on the UK’s 2050 net-zero target and their commitment to ‘levelling up’ regional economies, in the context of Covid-19 and Brexit. This current moment could pose an opportunity to accelerate action rather than a challenge in which progress is slowed, should policymakers and businesses take ambitious and holistic action, the document states.

A key recommendation is the creation of a UK National Investment Bank with an explicit sustainability mandate, which could be called the Net Zero Development Bank. Once the Brexit transition period is complete, many British businesses and projects will not be able to secure funding from the European Investment Bank (EIB) – so a UK version could bridge the public finance gap, according to the report. Backing for the creation of such an entity has also been supported by the IPPR in recent times.

More broadly, the report authors and supporters would like to see ministers make a strategic commitment to a just transition, including plans for mobilising public and private sector finance to deliver place-based projects which tackle both environmental and social challenges. Bodies like the Financial Conduct Authority and Green Finance Institute should also begin work to integrate social considerations into climate risk regulation, to help businesses avoid projects which spur decarbonisation but create unintended negative outcomes for society.

Also recommended are new mandates for private banks, requiring them to align their business models with net-zero more rapidly and holistically and to include social considerations in their climate planning. Beyond specific ‘sustainable’ funds, banks should be required to prove the compatibility of their operations and portfolios with the Paris Agreement, to project the likely social outcomes of their work and to achieve executive-level buy-in for a just net-zero transition. More bespoke support for SMEs should also be offered.

“The just transition is not yet another framework for banks to adopt,” the report authors argue. “Instead, by looking through the just transition lens, banks can strengthen their existing initiatives to cut climate risk, increase green finance and build resilience over the long term.”

According to the report, more than 150 institutional investors have committed to supporting the just transition through their shareholder engagement and capital allocation activities. This cohort is collectively responsible for more than $10trn (£7.9trn) in assets under management (AUM).

This ambition must be scaled to deliver a Covid-19 recovery that is aligned with the UK’s long-term climate ambitions and the scale of its social problems, the report concludes.

“We estimate that around 14% of jobs in constituencies in the top 10% for multiple deprivation will be in greater demand in the shift to a net-zero economy, a positive boost from the transition,” research fellow Andrew Sudmant said.

Green recovery journey

The publication of the report comes shortly after UK100 published a series of studies detailing how £5bn of spending on green projects could unlock £100bn of economic benefits for the UK.

Mayors and council leaders representing 25 million residents, coordinated by UK100, also recently warned that up to 2.2 million Brits could face unemployment unless the UK’s Covid-19 recovery package contains measures to reskill them for “green-collar” roles.

Chancellor Rishi Sunak has since unveiled a £3bn package for energy efficiency and nature. However, a dedicated fund for reskilling Brits to work in the renewable energy, cleantech and built environment sectors, which was widely expected, has yet to be confirmed.

Join edie’s Sustainable Investment Digital Conference

edie is launching its first bespoke sustainability conference focused on green finance, with experts from ING, BlackRock, BNP Paribas and more set to discuss investment and the green recovery at the Sustainable Investment Digital Conference on 7-8 September 2020.

The two-day digital event will feature a myriad of expert panel discussions, breakouts and deep dives into key green finance themes – plus opportunities to network virtually with delegates.

For further information, sponsorship inquiries and registration, click here

Sarah George

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie