Green Finance Taskforce report: UK poised to become green finance leader

The report offers a series of recommendations aiming to maintain the UK’s position as a world leading green finance centre and delivering the UK’s Clean Growth Strategy. The PRI’s CEO, Fiona Reynolds, served as a member on the taskforce.

The ambitious Taskforce recommendations are strongly aligned with reforms proposed by the EU High-Level Expert Group on Sustainable Finance. . They also reflect the PRI’s aim to encourage a more sustainable financial system through changing industry practice, financial regulation and green finance reforms.

Key recommendations for investors include:

• requiring TCFD disclosure by investors and companies;
• incorporating ESG into fiduciary duty;
• a national capital raising plan for clean infrastructure;
• new early stage venture co-funding to develop more investable opportunities; and
• a UK green sovereign bond to invigorate the Sterling bond market.

A six-month implementation phase will follow, to refine and clarify government actions. Within that window, the government will set out its action plan.

Nathan Fabian, director, policy and research, said: “The taskforce report outlines how the UK can build on its strengths of capital raising and green finance issuances to become a world leader in green investments.”

“The recommendations in the report pave the way for institutional investors to take advantage of investment opportunities in new technologies in order to manage the transition to a low carbon world and in so doing, mitigate the risks around climate change.”

“We especially welcome the proposed clarification of fiduciary duties and ESG issues as this will ensure that he UK financial system can robustly respond to issues such as climate change and the resultant opportunities in clean technologies including climate resilient infrastructure.”

Key recommendations

Relaunch UK green finance activities through a new unified brand

• Government and the City of London should establish a new Green Finance Institute brand. under which strengthened Green Finance Initiative capacity is established.
• This new Institute should set up a Green Fintech Hub.
• Government and the new Institute should deliver a joint diplomatic strategy on green finance.

Improve climate risk management with advanced data and analytics

• Private sector, academia and Government should establish a Centre for Climate Analytics.

Implement the recommendations of the Task Force on Climate-related Financial Disclosures 

• Companies and investors should use the TCFD framework to develop their financial, corporate governance and stewardship disclosures.
• Relevant financial regulators should integrate the TCFD recommendations throughout the existing UK corporate governance and reporting framework.
• The government and relevant financial regulators must clarify in their guidelines that disclosing material environmental risks, including physical and transition climate-related risks, is already mandatory under existing law and practice.

Drive demand and supply for grend lending products

• Government should extend 2035 EPC targets from residential properties to commercial properties by the end of 2018 and introduce requirement for operational energy ratings from 2020.
• Government should introduce Green Building Passports for residential and commercial properties by 2020.
• Government should complete research to understand the opportunities and costs of using a range of fiscal measures to boost demand for energy efficient retrofits in 2018, and pilot fiscal measures alongside mortgage products from 2019.
• Government should provide short-term incentives to pump prime the green consumer loans and green mortgage markets.
• UK lenders should work towards promoting awareness and mainstreaming a consideration of ‘green’ factors into all their mortgage lending decisions.

Boost investment into innovative clean technologies

• Government should set up a Green Investment Accelerator for early stage technology grant funding.
• Government should establish a dedicated public-private green venture capital fund.
• Increase commercial opportunities for UK businesses.

Clarify investor roles and responsibilities 

• Relevant regulators should ensure fiduciary duty clearly states the importance of ESG issues.
• Government should require that the Statement of Investment Principles include statements on the extent to which social, ethical and environmental issues (including climate change) are considered.
• Government should clarify that trustees can make investment decisions that are based on beneficiary preferences.
• Government should clarify that investment consultants should have sufficient expertise and competency on ESG issues.
• Investment advisors should ask clients about their sustainability preferences, and investment funds marketed directly to individuals should clearly state the ESG impacts of the fund.
• Government and professional bodies should develop competencies across a wider group of societal stakeholders through education tools.
• The Financial Conduct Authority should require that corresponding requirements are put in place for contract-based schemes.

Issue a sovereign green bond

• Government to issue a green sovereign bond. This should be of the order of the French sovereign green bond, which was €7bn and be considered as one of the measures of a comprehensive UK Green Capital Raising Plan.

Build a green and resilient infrastructure pipeline

• Government should publish a National Capital Raising Plan explicitly designed to align UK infrastructure planning with the delivery of the Clean Growth Strategy and the 25 Year Environment Plan.

Foster inclusive prosperity by supporting local actors

• Government should set up a Local Development Finance fund
• Boost demand from public bodies and their pension providers for diverse place-based low carbon investments.
• Government should set up Clean Growth Regeneration Zones.
• Awareness raising of green finance opportunities among local authorities.

Integrate resilience into the green finance agenda

• Government should establish a national resilience unit to coordinate and champion climate resilience and ensure government investment is ‘future proofed’ to climate change.
• Government should publish an action plan to develop the resilience market.