Big investors push UK to go further on green finance

Large investors are piling pressure on the UK government to take bolder action in the fight against climate change, despite the green finance measures unveiled by the chancellor last week.

Following Rishi Sunak’s announcement of plans to launch the UK’s first green gilts and require all companies to make climate risk disclosures, asset managers are urging the government to make additional commitments in order to achieve its net-zero carbon target by 2050.

The Investment Association, a trade body representing investors with £8.5tn in assets, called for “further action to consolidate the world-leading policy signalling that we have seen from the UK government”.

In a paper set to be submitted to the Treasury, it called for the introduction of “pathway” policies for different sectors of the economy to facilitate their transition to net zero.

“The UK is now at a critical juncture as we look to honour our [net-zero] commitment,” said IA chief executive Chris Cummings. Fund managers stand ready to work with government to realise this change and ensure the UK remains a global leader in sustainable finance, he added.

The calls underscore the huge societal pressure on policymakers to be more ambitious in the fight against climate change. The debate is likely to become more vociferous ahead of the COP 26 international climate talks in Glasgow next year and as Brexit prompts the UK to review its rulebook in areas such as green finance.

While welcoming the UK’s green finance plans, investors urged caution on some elements of the proposals. Royal London Asset Management, which manages £139bn in assets, warned that the new green gilts could carry the risk of “greenwashing”, depending on how they are structured.

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In a letter to the chancellor, RLAM chief investment officer Piers Hillier pointed to the risk of the debt not being ringfenced and therefore being serviced by cash produced from other “less environmentally friendly activities”.

The UK is keen to position itself as a world-leading green finance hub. However, other jurisdictions are also making strides to channel more private capital into sustainable projects, such as the EU’s landmark sustainable finance regulation.

While Britain has said it will develop a green classification system loosely based on the EU’s sustainable “taxonomy”, it has not committed to other parts of the EU package, such as sustainability disclosure requirements that will apply to European asset managers and financial advisers from next year.

The UK Sustainable Investment and Finance Association, whose members manage more than £10tn, wrote to the Treasury on Friday asking it to set out its post-Brexit approach to green finance “without delay” or risk falling behind in this area.

UKSIF called on the government to adopt an EU plan plus, aligned where the EU plan is good and better where it isn’t”. It added that the uncertainty regarding the UK’s approach risked creating a lack of consistency between EU and UK rules that could “prove costly to administer, confusing and ripe for error” for asset managers.

The Treasury said it understood the need for clarity on its post-Brexit approach and would set out further details in due course.

In a separate missive to the chancellor, civil society organisations the New Economics Foundation, Positive Money and the UCL Institute for Innovation and Public Purpose said that the UK’s taxonomy should include “brown” as well as green activities. It also called for transparency and public involvement to prevent lobbyists from playing an outsized role in the development of the framework.

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