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The Green Square Mile: Green Finance in the UK

Rory Chandler

What Mary Poppins Can Teach us about a Sustainable Future

2019 is shaping up to be an interesting year for the green economy in the UK. The government announced a new Green Finance Strategy and there was also a new Mary Poppins films out this year. The two are largely unrelated except that in the first Mary Poppin’s film, British children were told by Mr Dawes ( the film’s chairman of the Fidelity Fiduciary Trust) “While stand the banks of England, England stands. When fall the banks of England…England falls!” There is an appreciable irony that while many government initiatives in the UK have stalled, it is to the banks, funds and investors that the government has turned to help drive the renewables sector forward. If the UK is to whether the storm of climate change it will indeed now stand or fall on the strength of its banks, funds and investors.

Why Green Finance is the New Normal

History tells us that governments can often be very blind to the obvious. The tech sector is a good example of this phenomena where laws and initiatives have failed to keep up with the pace of change. In the instance of Green Finance, we have to say that it is an idea whose time has come and its good to see it being taken seriously. There are several reasons why green finance is so important:

 

•             We’re beyond thinking climate change is a theoretical threat only. In this context becoming net-zero isn’t the burden that some planners might have once thought it was. A sector that is as risk averse as investing can recognise the value of climate mitigation.

•             We’re in an age of corporate transparency, consumers and governments expect disclosure. Consumers will march with their feet if they feel that sustainability goals are not being met.

•             There are already many early adopters of Green Finance methodology amongst larger players and national banks. Those that dither will be left behind.


What is the Green Finance Strategy and what are its Objectives?

The strategy is designed to support the UK’s commitment to being net-zero by 2050. It will seek to align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by Government action. The approach is also seen as integral to maintaining the long-term competitive advantage of UK finance by making it a world leader in green finance. Given the importance of finance to the UK economy, the plan should help future proof the sector by making firms integrate environmental risks into financial decision making, as well of improving the UKs infrastructure. The overall view is that there is a strong commercial logic to combat climate change in itself and for the opportunities such financial expertise will bring on the world stage.


Can it Succeed?

The new Green Finance Strategy is a genuinely smart move and will surely be emulated by other countries. It represents a new dynamic for sustainability and renewables; instead of seeing environmental best practice as an economic drain and trade off for finance it has instead sought to make it a sine qua non of future finance. Globally governments have withdrawn away from subsidizing renewable energy projects, if private investment is going to plug the gap then strategies that ensure effective investment are crucial. Subsidy cuts have already stimulated R&D to improve efficiency in many areas of renewable energy, the commercially savvy investors should hopefully do the same to the organisation and management of projects.

The strategy should commit the UK Government to a series of policies that will enable greater involvement from green investors. The big challenge to success will not come from the financiers but more from government, it will need to ensure that it’s investments match the scope of the schemes ambitions. The creation of The Green Finance Institute, which was formally launched at the start of July is a good statement of intent for collaboration between the public and private sector and bodes well for the future of the strategy.