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UK government tells banks to go green in anti-carbon push

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Climate change activist from the Extinction Rebellion outside the Bank of England on 25 April. Photo: Mike Kemp/In Pictures via Getty Images

The UK government on Tuesday launched a landmark “Green Finance Strategy” aimed at making efforts to fight climate change a key priority for the City of London.

City minister John Glen will today tell financiers that he wants London to become a hub for green financing and investment globally.

“The City has a vital role to play in securing a greener future for us all,” Glen will say. “By investing more in sustainable projects it can not only protect our environment, but also help establish London as the pre-eminent international centre for green finance.”

The speech will be delivered at the third Green Finance Summit in London and coincides with the launch of the government’s first Green Finance Strategy.

The new strategy includes setting up a new Green Finance Institute to coordinate public and private sustainability activity, establishing a new £5m green home finance fund, and mandating that financial regulators and watchdogs take climate change into account when assessing businesses.

READ MORE: May sets 'net zero' carbon emission target as she eyes a Downing Street legacy

Companies will also have to start disclosing their climate change risk by 2022, although the government will consult on how exactly the enforce this.

“Today’s Green Finance Strategy will support this ambition,” Glen will say, “with new initiatives to boost funding for green ventures and ensure the environment is at the centre of all financial decision-making.”

Lloyds (LLOY.L) chief executive António Horta-Osório publicly threw his weight behind the push, saying in a statement: “A good investment shouldn’t be at the expense of our planet.

“That’s why we are building on our pledge to help Britain prosper, by supporting the transition to a low carbon economy and working in partnership to make homes, vehicles, businesses, pensions and investments, loans and insurance more sustainable.”

Carbon neutral by 2050

City Minister John Glen. Photo: Hannah McKay/Reuters

The action plan follows a landmark pledge from the government to make the UK completely carbon neutral economy by 2050.

Sir Roger Gifford, chair of the new Green Finance Institute, said in a statement: “Considerable investment will be required to enable this and London is uniquely positioned as a global centre for environmental finance.

“The new Green Finance Institute will play an important role in catalysing this transition both in the UK and overseas."

READ MORE: May's net-zero emission plan could cost £50bn a year — but might just work

The UK already has a fledgling reputation for green finance: 16 countries have issued over 100 green bonds in London, raising $16bn.

However, the government hopes to grow this niche sector into the engine room of future growth.

Transitioning to a carbon neutral economy will cost an estimated £50bn a year in the UK alone and could cost as much as $90trn across the G20 by 2030. As well as vital for the environment, these investments could turn into lucrative business for banks and investment companies in the UK.

‘Unprecedented challenges’

Governor of the Bank of England Mark Carney has backed the green finance push. Photo: Simon Dawson/PA Images via Getty Images

The green push coincides with a similar call from the Bank of England for finance to go green. The Bank of England has pledged to “lead by example by increasing transparency over the Bank’s exposure to climate risks and approach to managing them.”

The central bank will also begin climate stress tests in 2021. It will examine how banks would cope with climate risks such as the banning of carbon-based fuels or increased flooding in certain areas.

“Some business models will become obsolete and, in anticipation of this, valuations will be reappraised,” the Bank of England wrote in a recent report.

READ MORE: Mark Carney vows to reinvent Bank of England for 'fourth industrial revolution'

Andrew Bailey, the CEO of the Financial Conduct Authority, warned on Tuesday that the transition to a low-carbon economy would pose “unprecedented challenges” for companies.

Sam Woods, CEO of the Prudential Regulation Authority, said: “Climate change has the potential to create significant financial risks for the firms the PRA regulates.

“The challenge we face in mitigating these risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a carbon-neutral economy.”

Sir Win Bischoff, chair of the Financial Reporting Council, said in a statement: “The effect of climate change on society and business is one of the defining issues of our
time. As well as reporting on their impact on the environment, public companies and their Boards should address the impact of climate change on their business.”

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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