More favourable domestic green policies and regulations that clarify the role of financial firms in helping to decarbonise and combat nature-loss could help shift up to £100bn in globally managed investments towards the UK, according to fresh research released today.
A survey of 100 financial service organisations representing £1tr in annual turnover and over £200bn in UK green investments carried out by the UK Sustainable Investment and Finance Association (UKSIF) signals sizeable support for stricter and clearer green policies and regulations.
But UKSIF, which boasts more than 300 members managing over £19tr in global assets, said a lack of clear and ambitious green policies – as demonstrated by the government’s decision last autumn to ditch or water down a number of its net zero policies – risked the UK missing out on much needed green investment to international competitors such as the US, EU, and China.
The survey found 83 per cent of survey respondents said the UK remained their top market for sustainable finance activity.
However, the findings also indicate that due to a perceived lack of clarity and supportive green policies from government, as two thirds of respondents said they already have or plan to move investments out of the UK to a market that is more supportive of their sustainability goals.
But should the UK government adopt a series of new green financial policies and practical regulations, UKSIF found 95 per cent of respondents would plan to increase their investment in the UK either through new projects, existing projects, or both.
UKSIF calculated that, for those surveyed alone, adopting more favourable green finance policies in the UK – such as mandatory corporate nature and climate risk disclosure requirements – could shift an estimated £100bn in assets under management to the UK.
James Alexander, CEO at UKSIF, said the UK was now facing “a crucial inflection point that could see it either close the remaining gaps and benefit from the great strides we have taken in our global leadership on sustainable finance to date; or lose its hard-won position as a leader”.
“The recent flipflopping on wider sustainability policies, continued absence of detailed policy frameworks for various sectors, alongside secondary factors such as a lack of clarity from policymakers in creating a clear and stable financial services regulatory framework, is helping drive away much needed private capital into the UK that can help progress the country towards net zero,” he warned.
UKSIF said it worked with a raft of organisations and businesses – including green business body the Aldersgate Group, Bankers for Net Zero, B Lab UK, the Impact Investing Institute, and campaign groups ShareAction and Make My Money Matter – to develop policy proposals it said could help to boost sustainable finance and green investment in the UK.
These proposals include adopting the International Sustainability Standards Board’s (ISSB) latest standards, making it a legal requirement for companies to produce corporate climate transition plans, and finalising the UK’s so-called green taxonomy to establish what constitutes a green investment.
UKSIF is also recommending the government embed biodiversity more deeply into its regulatory framework by adopting the recommended guidelines of the Taskforce on Nature-related Climate Disclosures (TNFD), and calling on Ministers to provide greater clarity over the fiduciary duty and role of pension schemes in measuring and reporting their climate impacts.
A new biodiversity-specific standard to help support financial firms in the UK and globally to address the financial risks posed by damage to the world’s biodiversity and reduce the economic impact on GDP should also be introduced, UKSIF said.
“Failing to remain at the forefront and provide a stable financial services regulatory framework and sustainable finance regime will, we expect, constrain progress in addressing greenwashing risks and make it more complex for investors to access information that can assist them in identifying opportunities in the net zero economy,” the report explains.
“Fortunately for the UK, there are a range of regulatory and policy changes that could help re-establish the UK as the world’s leading sustainable finance hub, providing transition finance services, products and innovative instruments that could bring many billions of pounds into the UK economy. These changes will open new opportunities and de-risk investments that, in turn, could draw in more private capital.”
The government has consistently argued that it has delivered faster emissions reductions than any other G20 nation, is committed to delivering on its climate goals, and has established the UK as one of the world’s leading hubs for green finance.
However, it has faced fierce criticism in recent months from business leaders, campaign groups, and advisors, who have warned the UK is no longer on track to meet its medium term emissions goals and is at risk of seeing green investment migrate to the US, EU, and China, all of which have put in place ambitious new support packages for green businesses and infrastructure.
The UKSIF report comes just a day after the US government announced a fresh wave of tariffs on Chinese imports, including a range of clean technologies such as electric vehicles and solar panels, in a bid to boost investment in America’s domestic clean tech manufacturing base.
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