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Smart regulation is critical for greening finance

18th October 2021

Responding to the publication today of the government’s new strategy Greening Finance: A Roadmap to Sustainable Investing, Josie Murdoch, Senior Policy Officer at the Aldersgate Group, said: “We welcome the government’s plans for greening the financial sector and embedding climate and the environment into decision-making for financial institutions and corporates, as well as into investment products.[1] Three elements of the new Roadmap are particularly welcome. Firstly, the plan to integrate different disclosure frameworks within the Sustainability Disclosure Requirements (SDR) integrated framework, which will be based on the Taskforce for Climate-Related Financial Disclosures (TCFD) framework. This will reduce reporting burden for businesses. Secondly, the SDR requirement for firms to publish transition plans that align with the government’s net zero commitment, on a comply or explain basis. Thirdly, requiring companies to disclose which proportion of their activities are aligned with the new UK Green Taxonomy will help to prevent greenwashing.”
 
Josie Murdoch added: “Looking ahead, the government must ensure that the UK SDR and its taxonomy are aligned with other international frameworks, such as the EU’s Sustainable Finance Disclosure Regulation (SFDR). This will simplify the reporting process and ensure that businesses operating in several jurisdictions are not subject to multiple reporting requirements that may be incompatible. A timeline setting out when the different elements of this new regulation will be introduced would also help businesses prepare for these new reporting standards. Finally, a further commitment on requirements for businesses to publish net zero transition plans ahead of COP26 would be welcome. By making it mandatory for large businesses to publish plans on how they will ensure their operations and investments are aligned to the UK’s net zero target, government will send a clear signal on green finance and demonstrate leadership at the international level.”
 
-ENDS-
 
[1] In June 2021, the Aldersgate Group called for stronger financial regulation to be introduced across the economy, in order to green the UK financial system. We argued that new regulation would ensure a level playing field, increase comparability of disclosures and reporting, and ultimately ensure that finance is being allocated as strategically as possible to deliver the UK’s climate goals.

City of London

Labour calls for mandatory net zero transition plans: Aldersgate Group reactive

13th October 2021

In a speech today ahead of COP26 in Glasgow, Shadow Business Secretary Ed Miliband called on the government to make it mandatory for financial institutions and FTSE100 businesses to publish plans for meeting net zero. This follows a letter signed on Monday by the Aldersgate Group and a range of large companies and financial institutions [1], calling for mandatory transition plans to be introduced for large companies from 2025, with the government opening a consultative process in 2022 to develop a roadmap towards the introduction of such a requirement.
 
Reacting to the announcement, Nick Molho, Executive Director of the Aldersgate Group, said: "We welcome today’s announcement from the Shadow Business Secretary Ed Miliband. Although 60% of the world’s largest companies now support, or report in line with, the recommendations of the Taskforce for Climate-Related Financial Disclosures, less than a third of PRA-regulated banks and building societies surveyed in 2020 had a science based target or net zero strategy in place [2]. The Aldersgate Group sees the introduction of mandatory net zero transition plans as the natural next step to climate-related financial disclosures and one which is essential to drive greater market transparency and good business and investment decisions. At a time where a growing number of companies are taking on net zero targets, the introduction of such a requirement would also promote a level playing field as the economy as a whole moves towards net zero emissions."
 
Nick Molho added: “To support the introduction of mandatory net zero transition plans, it will be essential for government policy to encourage businesses and financial institutions in the near term to produce plans on a voluntary basis and for regulators to provide them with supportive guidance. Publishing a comprehensive set of sustainable finance definitions through the upcoming UK green taxonomy will also be essential to support companies in this process and ensure that clear, transparent and comparable disclosures can be produced. It will also be important for businesses and financial institutions to continue mainstreaming sustainable finance knowledge amongst their staff, to ensure they have the expertise and skills required to produce quality plans."

- ENDS -

[1] This week the Aldersgate Group and leading companies, including various FTSE companies and financial institutions, wrote to the Chancellor and Secretary of State for the Department of Business, Energy and Industrial Strategy, calling on the UK Government to make the disclosure of net-zero transition plans mandatory for large companies. Further information can be found here.

[2] Financial Stability Board (October 2020) 2020 Status Report: Taskforce on climate-related financial disclosures; and PWC (October 2020) Rising to the challenge: climate risk in the UK banking sector

Big ben

UK should seize unique opportunity to green its financial system

22nd June 2021

In a new report published today [1], the Aldersgate Group urges the Government to use the UK’s current leadership position on climate change and the environment, and its ongoing review of financial services regulations [2], to embed environmental sustainability into the rules governing the UK’s financial system and influence similar changes to international rules and standards. The Group also calls for the publication of more detailed and comprehensive policy commitments to accelerate and lower the cost of private investment in the low carbon and nature restoration projects needed to meet the UK’s climate and environmental targets.

The report – which is based on extensive engagement with leading financial institutions, FTSE100 businesses and civil society organisations – sets out a range of recommendations to: (i) more deeply embed climate and nature restoration targets into the decision-making of financial institutions, businesses and Government; (ii) accelerate and lower the costs of private investment in green projects; and (iii) work closely with international partners in areas of mutual interest, such as carbon trading, disclosures and green taxonomies.

~ The key findings of the report will be discussed at a webinar on Tuesday 22 June at 9.30am with John Glen MP, Economic Secretary to the Treasury, and a range of senior speakers from the business, financial institution and NGO community. [3] ~

The UK Government has made welcome commitments on green finance since the publication of the Green Finance Strategy in 2019, including mandating that disclosures are aligned with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD) by 2025, and launching the new UK Infrastructure Bank with a mission to support the delivery of the net zero target. The Government has also rightly identified mobilising green finance as one of the four key themes at COP26.

However, climate and environmental considerations are still not sufficiently embedded in the UK’s financial system, with only a third of Prudential Regulation Authority-regulated banks and building societies having a science-based target or net zero strategy. [4] Whilst private investment into low carbon and environmental projects is on the rise, it remains insufficient, with some complex projects facing significant market barriers in areas such as heavy industry and nature restoration. This comes at a time when the Climate Change Committee estimates that some £50bn in additional infrastructure investment will be needed every year from 2030 onwards to put the UK on track for the Sixth Carbon Budget and its 2050 net zero emissions target. [5]

In light of these challenges, the Aldersgate Group’s latest report Financing the future sets out a range of recommendations to put the whole financial sector on track to deliver the UK’s net zero and environmental targets, whilst simultaneously unlocking private investment to drive low carbon innovation, supply chain growth and job creation across the UK. The report highlights that the ongoing review of the regulatory framework governing the UK’s financial services sector – made necessary by the UK’s departure from the EU – provides an opportunity for the UK to lead the way in incorporating environmental sustainability into the regulatory framework governing its financial system and, in doing so, influence key changes to the international financial rules and standards.

Key recommendations include:

Accelerating the take-up of climate-related disclosures

  • The Government should support a review of existing guidance, standards and definitions governing climate-related disclosures (including the TCFD, Streamlined Energy and Carbon Reporting, and the Carbon Disclosure Project) to ensure a more rapid take-up and greater consistency and comparability between disclosure requirements. The report also calls on regulators to provide guidance to improve voluntary reporting of scenario analysis under the TCFD, with a view to introducing mandatory scenario analysis from 2025.

Embedding climate and environmental targets at the heart of the financial system

  • The Government, Bank of England and the Financial Conduct Authority should consult on a roadmap to introduce regulation that requires financial institutions to produce net zero targets and transition plans in the 2020s, with regulation starting no later than 2025. Part of this consultative process should involve regulators providing guidance to support and encourage all sub-sectors of the financial services industry to publish net zero transition plans and targets on a voluntary basis, with guidance to be published no later than 2022.
  • Pension fund managers should be required to automatically enrol new beneficiaries into Paris Agreement-aligned pensions funds and proactively engage with existing beneficiaries to outline the benefits of transferring fund holdings into Paris-aligned funds and environmental, social and governance (ESG) schemes.
  • UK policy makers and regulators should work together to set capital treatment for banks and insurers in a way that reflects the long-term risks of assets to financial stability, to incentivise more strategic asset allocation in environmentally sustainable assets and a transition away from high carbon or environmentally damaging assets.

Maximise the impact of public finance to crowd in private investment

  • Maximise the impact of targeted public finance to crowd in private finance in complex low carbon and environmental projects [6]. In particular, the recently launched UK Infrastructure Bank (UKIB) should be strengthened by including environmental resilience as part of its mandate, ensuring that it is able to tackle different market failures as market conditions evolve and by increasing its capitalisation over time. There should be a joined-up strategy to ensure that the focus of the UKIB and the Government’s green sovereign bond issuances are carefully co-ordinated to maximise the impact of public finance in overcoming market barriers.

Introducing strong policy signals to accelerate private investment in low carbon infrastructure and nature restoration projects

  • The Government should accelerate and lower the cost of private investment in low carbon infrastructure and services by publishing a detailed and cross-Government net zero delivery strategy ahead of COP26. This should set out the key policy decisions that will be adopted over the next five to ten years on a sector-by-sector basis to put the UK on a credible pathway towards its net zero target. [7]
  • The Group also calls for more ambition on carbon pricing and in particular a strengthening of the UK Emissions Trading Scheme (UK ETS). This should include Government rapidly consulting on the alignment of the UK ETS with the net zero target, setting a rising carbon price trajectory throughout the 2020s, gradually phasing out free emission allowances and expanding the scope of the scheme to a growing number of economic sectors where feasible.
  • Building on the Dasgupta Review commissioned by HM Treasury, urgent efforts should be made to embed the value of nature into economic policy and investment decision making and accelerate private investment in nature restoration projects. This requires strengthening the target setting and delivery process in the Environment Bill, making reporting in line with the new Taskforce for Nature-related Financial Disclosures (TNFD) mandatory in the 2020s, and working towards the introduction of a mandatory requirement for businesses to prepare and publish biodiversity loss mitigation and adaptation targets, and associated transition plans.

Influencing international rules and standards and driving global collaboration on green finance

  • Building on domestic reforms, the UK should use its leadership position on the global climate agenda following the G7 summit and its presidency of COP26 to encourage a greater focus on environmental and climate considerations in the rules and standards governing international financial markets. This should include collaborating with key international partners, including the EU, on areas of common interest such as the development of green taxonomies and climate and nature-related disclosure requirements.
  • The UK should use its presidency of COP26 to finalise a rule book for international carbon trading under Article 6 of the Paris Agreement. The Aldersgate Group would also welcome the restoration of the historical commitment of 0.7% of Gross National Income on Overseas Development Aid, to demonstrate the UK’s dedication to international climate finance.

Nick Molho, Executive Director, Aldersgate Group said: “Meeting the UK’s net zero emissions and nature restoration targets is a significant investment challenge, most of which will be met by the private sector. Providing clear policy commitments and fully embedding the UK’s climate and environmental targets in the way the financial sector operates are key to attracting the level of private investment we need and lowering the cost of finance. The regulatory review made necessary by the UK’s departure from the EU provides the UK with the opportunity to be a world leader in greening the rules governing its financial system and becoming a genuinely world class centre for green finance; the Government should seize it.”

Ian Dickie, Director at eftec, said: “The potential environmental markets on biodiversity, carbon and nutrients etc are now real. The Government needs to provide clear rules, adequate governance and invest to leverage private finance; this will give confidence to investors and benefit the environment. The Aldersgate Group message, that good environmental regulation is good for the economy, has never been more relevant".

Stephanie Maier, Global Head of Sustainable and Impact Investment, GAM Investments, said: “The recent Net Zero by 2050 report from the International Energy Agency provided compelling evidence of the enormous effort that will be needed to decarbonise the sector; private finance and investment have a pivotal role in supporting both this and the transformation of the whole economy. This report from the Aldersgate Group sets out recommendations for Government and financial regulators to facilitate and accelerate this transformation by capitalising on the opportunity presented by COP26.”

Raphaëlle Vallet, Manager, Sustainable Finance, Green Investment Group, said: “Achieving Net Zero requires a colossal effort across the public and private sectors. We urgently need to mainstream sustainability throughout policy frameworks and investment decisions. Aldersgate Group’s report is an excellent contribution to the agenda, with practical steps that will help drive finance towards a net zero future.”

Sam French, Business Development Director, Johnson Matthey, says: “The recommendations for financing green projects and infrastructure in Financing the future are critical to accelerate innovation in areas such as hydrogen and CCUS, and drive emissions reductions across the UK. In particular, it is vital that the Government uses carbon pricing as a tool to drive funding towards low carbon technologies, by aligning the UK Emissions Trading Scheme (ETS) with net zero and the EU ETS, and giving stability to businesses through a carbon pricing escalator. In addition, developing supportive business models for hydrogen and CCS will be essential to enable businesses to invest in these new markets allowing the UK to position itself as a leader in both deployment and the associated supply chain.”

Paul Morling, Economist at the RSPB, said: “Our future economic prosperity depends on the choices we now take to build back better from Covid and the centrality of climate and nature in recovery strategies. Greening finance is an urgent priority and this report sets out the necessary actions to effect the sustainable transition we need to see for our wellbeing, future generations and nature.”

Bevis Watts, Chief Executive Officer at Triodos Bank, said: “We are pleased to support the findings of this important report. We welcome the calls to support investment in areas such as nature-based solutions, but while increasing interest in the environmental crises and net-zero is encouraging, we now need a step change in the ambition of the financial sector to have any hope of meeting the scale of the challenges we face. Achieving this will require drastic changes to the structures of our financial systems and the regulation that supports it.

Robust, science-based net zero targets are critically important and we also need to recognise the inherent value of our environment and the challenge we have to redesign systems to reflect much more than a financial bottom line. It is time for the finance sector to play its role and use more imagination in how economic outcomes can be linked to investment in nature alongside the broader social needs outlined in the UN Sustainable Development Goals. This is central to developing a new economy built on values rather than value, and that has an integral connection to societal health and environmental limits.”

Julia Barrett, Chief Sustainability Officer at Wilmott Dixon, said: “Private sector investment will be essential in helping the UK meet its climate and environmental objectives and secure a green recovery, as today’s report by Aldersgate Group makes abundantly clear.  For businesses, the publication of a comprehensive and joined-up Net Zero Strategy by Government ahead of COP26  will be fundamental to demonstrate the direction of travel for each sector in the run up to 2050, helping them allocate capital in the most efficient way to meet these milestones. 

In the construction sector specifically, binding regulatory standards and tax incentives to drive investment in energy efficiency and low carbon heat in existing buildings will be key. Furthermore well-designed and properly enforced, ambitious environmental regulations will help mobilise investment in the infrastructure, innovation, skills and supply chains needed for the whole sector to meet net zero.”

-ENDS-

[1] The new report Financing the future: Driving investment for net zero emissions and nature restoration is available here. The report was developed with the support from the Centre for the Understanding Sustainable Prosperity (CUSP).

[2] The ongoing Financial Future Regulatory Framework Review considers how the regulatory framework governing the UK’s financial services sector needs to evolve to reflect the UK’s position outside the EU. More information is available here.

[3] The report will be debated at an event from 9.30am to 11.00am on Tuesday 22 June, with panellists from multiple business sectors. You can register here.

[4] PwC (October 2020) Rising to the challenge: climate risk in the UK banking sector, available here.

[5] Currently, the UK is seeing a major investment gap in both low carbon infrastructure and natural capital. Research from the Climate Change Committee (CCC) has estimated £50 billion of annual additional investment will be required from 2030 onwards to deliver the net zero target, in addition to current economy-wide annual investment of just under £400 billion. The largest increases in investment are needed for building low carbon power capacity, retrofitting buildings, developing batteries and putting in place the required infrastructure for electric vehicles. The Institute for Public Policy Research has estimated that nature restoration alone could need as much as £4.7 billion of additional funding each year.

[6] The crowding in theory of change is based on the principle that rising public spending and Government borrowing drives up private sector demand and spending in areas of the market which have typically been low. This can be achieved by, for example, de-risking new technologies, or “creating a market in the gap” where market failures have existed for a long time.”

[7] In October 2020, the Aldersgate Group published a report outlining the policy detail for decarbonising each sector, titled Building a net zero emissions economy: Next steps for government and business. The report is available here.

 


National Infrastructure Bank must drive investment in low carbon and natural capital projects

8th February 2021

The Aldersgate Group is part of a group of twenty organisations which wrote a letter to the Chancellor of the Exchequer last week to make recommendations for the design and mission of the new UK National Infrastructure Bank, as announced in the 2020 Spending Review. As the UK faces the triple crises of climate, biodiversity and COVID-19, the Aldersgate Group believes that a core focus of the Bank should be to play a vital role in setting long-term committed public funding and unlocking further private finance. This approach can drive the Prime Minister’s desire for a green industrial revolution across the country and help the UK bounce back from the COVID-19 crisis.  

The Bank should be established as a mission-driven institution with a legal mandate to achieve the levelling up agenda, the UK’s net zero emissions target and its ambition to reverse the decline of the natural environment within a generation. The Bank’s primary objective should be to genuinely address market failures and act as a de-risking vehicle to ‘crowd in’ private capital towards the technologies, skills and institutions that will be needed to build a thriving net zero emissions economy. These should include the emerging technologies needed to decarbonise complex parts of the economy, such as hydrogen and carbon capture, use and storage, but also natural capital and nature-based solutions.

Alongside twenty other signatories, the Aldersgate Group believes that the National Infrastructure Bank should be fully independent, led by an experienced public banker and a board which reflects the sectors with which the bank will interact. It should also have sufficient funding to carry out its mission and functions. Finally, signatories call on the Bank to have the power to access capital markets for both debt and equity, and to create opportunities for citizens to participate and invest in the UK’s transition to a net zero emissions economy.

The letter to the Chancellor was supported by a detailed policy briefing accessible here.


UK sends major signal ahead of COP26 with greening of UK Export Finance

11th December 2020

Reacting to the Government's announcement on ending fossil fuel support overseas through UK export finance, aid funding and trade promotion, Nick Molho, Executive Director at the Aldersgate Group, said: “We warmly welcome the Prime Minister’s commitment ahead of the Climate Ambition Summit to end support for fossil fuel sectors overseas and shift to financing low carbon energy projects. In doing so, the UK has sent a clear signal to the wider investment market about the importance of aligning financial flows with climate objectives and has put in place the right conditions to have the world’s greenest export credit agency ahead of its COP26 presidency. In order to prevent major stranded asset projects, we urge the government to implement this change as soon as possible, with all future projects in line with the goals of the Paris Agreement. Government should build on today’s announcement by ensuring that environmental and climate objectives are placed at the centre of our future trade policy, with robust scrutiny measures inserted into the Trade Bill currently passing through Parliament." [1]

- ENDS -

[1] The Aldersgate Group's trade briefing, Aligning the UK’s trade policy with its climate and environmental goals, calls on the UK government to ensure its upcoming trade agreements are supportive of the UK’s environmental and climate ambitions. The report can be found here: https://www.aldersgategroup.org.uk/latest/page:2#uk-trade-policy-must-be-aligned-with-environmental-and-climate-goals

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Mandatory climate risk disclosure key to improving decision making

9th November 2020

Reacting to the Chancellor of the Exchequer's announcement today on the UK's roadmap to mandatory climate-related disclosures, Nick Molho, Executive Director at the Aldersgate Group, said: "The Government’s intention to legislate for companies to disclose their exposure to climate risks in line with the TCFD recommendations [1] is an essential step in improving the quality, comparability and transparency of climate-related disclosures across the economy and one which the Aldersgate Group has long called for [2]. To ensure that this new reporting regime results in better decision making, it will be important that companies be required to report how they are managing the climate risks they have identified."

Nick Molho added: "Government policy can support businesses in adapting to TCFD aligned reporting by providing supportive guidance, setting up a corporate reporting lab to test different reporting approaches, and looking at how existing disclosure requirements can best be integrated within the TCFD reporting framework to avoid duplication of effort."

Nick Molho added: "Today’s announcement of the UK’s first Sovereign Green Bond in 2021 is a welcome step in financing projects which deliver on the UK’s climate and environmental ambitions. There is still further work to do in delivering the Government’s objective of greening the financial system and growing the flows of green finance. Developing green finance standards, setting up a National Investment Bank and reviewing prudential requirements to make it easier to invest in low carbon infrastructure are all essential measures that will help unlock the private finance needed to deliver the UK’s net zero emissions target and other environmental goals." [3]

—ENDS—

[1] The Financial Stability Board set up the Taskforce on Climate-related Financial Disclosures (TCFDs), which published key recommendations to improve and increase the disclosure of climate-related financial information: https://www.fsb-tcfd.org/

[2] In October 2019, the Aldersgate Group published a policy briefing calling for TCFD aligned reporting to be made mandatory and setting out a range of recommendations to implement such a requirement in practice: https://www.aldersgategroup.org.uk/latest/page:2#mandatory-climate-risk-disclosure-essential-to-get-to-net-zero

[3] On 5th October, the Aldersgate Group launched a new report, Building a Net Zero Emissions Economy, which sets out key policy measures which need to be taken in this parliamentary term to put the UK economy on track for net zero emissions. The report is available at: https://www.aldersgategroup.org.uk/latest#businesses-call-for-urgent-policy-decisions-to-put-uk-economy-on-track-for-net-zero-emissions

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Green Finance Strategy must deliver a net zero and resilient future

2nd July 2019

Welcoming the launch of the Green Finance Strategy today, Alex White, Policy Manager at the Aldersgate Group, said: “The UK’s first ever Green Finance Strategy is an important step in delivering the necessary investment for our 2050 net zero emissions target and the ambition of the 25 Year Environment Plan. There are several good announcements today. For example, the new £5m Green Home Finance Fund is a positive move for incentivising domestic energy efficiency investment, and the launch of the Green Finance Education Charter will be vital in ensuring the UK financial sector has the skills and expertise to lead the flourishing international green finance market.”
 
“We welcome the recognition that private finance has a key role in tackling climate change and enhancing resilience, but the government must enable it to do so through the right policy framework. This Strategy must now be accompanied by an update on the Clean Growth Strategy based on the new net zero target, with binding regulations and market mechanisms to increase investment in zero carbon buildings, industry, transport and natural climate solutions.”
 
Alex White added: “Widespread and consistent adoption of the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations is necessary to create a level playing field, ensure comparability and future-proof businesses and investors against the financial impacts of climate change. We urge government to send a clearer signal that TCFDs will become mandatory by 2022 if voluntary take-up remains insufficient.”

- ENDS -

[1] The Aldersgate Group published a report on green infrastructure investment in March 2018, Towards the new normal: increasing investment in the UK’s green infrastructure which considers changes to financial regulations to encourage long-term investment in green infrastructure and greater mandatory business disclosure of climate and environmental risks to better inform investment decisions, alongside recommendations on targeted public spending to crowd in private sector investment in complex projects and greater policy detail to deliver a cost-effective pipeline of green infrastructure projects.
 
[2] The Aldersgate Group was also part of the government’s Green Finance Taskforce which released its recommendations in March 2018. http://greenfinanceinitiative.org/workstreams/green-finance-taskforce/

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Aldersgate Group reactive to Green GB Week green finance announcements

17th October 2018

Alex White, Policy Manager at the Aldersgate Group, welcomed government’s announcements on green finance today, saying: “It's positive to see that the government is driving forwards the green finance agenda. In particular, we're encouraged that government is supporting work on the development of green finance standards and that it is considering how the growth of green finance can have real impacts on infrastructure funding. Today’s announcement on quantifying the UK’s pipeline of green infrastructure will help to demonstrate the size of the investment opportunity to the private sector, as well as the gap in planned UK infrastructure we still need to build to remain within 1.5 degrees of global warming.”

Alex White added, “Once we’ve established just how green the infrastructure pipeline is, government must provide more clarity in the coming months on the regulations and incentives that will be introduced to encourage even more green projects to fill that infrastructure gap and meet our carbon budgets, such as investment in the energy efficiency of buildings, low carbon heat, electric vehicles and the natural environment. The new Clean Growth venture capital fund announced today will be a useful tool to support investment in these less mature and complex areas. We're also pleased to see the planned engagement at regional level, to really deliver the gains from green finance across the country.”  

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Realign investment decisions to avoid long-term risks

4th June 2018

Responding to the House of Commons Environmental Audit Committee (EAC)’s report today on embedding sustainability in financial decision making, Alex White, Senior Policy Officer at the Aldersgate Group said: “Financial markets are overwhelmingly geared towards maximising short-term returns, to the potential detriment of long-term value creation. [1] However, climate-related risks and pensions are both long term in nature. It is not sound financial management if up to £2tn of UK pension savers’ money [2] is being invested without a strategy to avoid the longer-term risks that could reduce the value of their savings. We therefore endorse the EAC’s recommendation to clarify that pension fund trustees must consider Environmental, Social and Governance risks as part of their fiduciary duty.”

Alex White added: “Better information on long-term risks and risk management strategies is needed to underpin a more forward-looking financial system. The current lack of sufficient, quality data about the financial impacts of climate-related risks and opportunities makes it difficult to accurately calculate investment risk and allocate capital efficiently, even with clearer guidance on fiduciary duties. 

Widespread implementation of the TCFD framework will help businesses, investors and investment intermediaries to develop long-term climate risk management strategies. To ensure comparability between sectors this should be mandatory in the medium term, with a transitional arrangement from current mandatory carbon reporting to minimise burden for reporting entities. Businesses will require greater guidance and technical assistance from government, similar to the European Commission’s proposed Corporate Reporting Lab [3], to help identify best practice and allow for initial trial and error.” 

[1] The Aldersgate Group published a report on green infrastructure investment in March 2018, Towards the new normal: increasing investment in the UK’s green infrastructure which considers changes to financial regulations to encourage long-term investment in green infrastructure and greater mandatory business disclosure of climate and environmental risks to better inform investment decisions, alongside recommendations on targeted public spending to crowd in private sector investment in complex projects and greater policy detail to deliver a cost-effective pipelines of green infrastructure projects.

[2] Converted from USD$2,868bn in 2016. Source: Willis Towers Watson (January 2017) Global Pension Assets Study 2017

[3] European Commission (8 March 2018) Action Plan: Financing Sustainable Growth COM/2018/097

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No investment pipeline without policy detail

16th May 2018

Endorsing the House of Commons Environmental Audit Committee (EAC)’s report on green finance today, the Aldersgate Group stressed that government must provide additional detail on delivering the ambition of the Clean Growth Strategy and the 25 Year Environment Plan to provide a project pipeline for investment. 

Alex White, Senior Policy Officer at the Aldersgate Group said: “There are willing investors in the green economy, but not enough projects to invest in. Boosting the pipeline of green infrastructure projects will be critical to meet the UK’s environmental goals and should be the first priority in growing green finance. Policy detail is key: as the report notes, policy changes in the last Parliament, such as the cancellation of the Zero Carbon Homes policy, has contributed drop off in bankable projects. Government must now restore investor confidence and rebuild the base of investible propositions through clear and stable policies. In particular, we look to government to set out detailed policy mechanisms for boosting private sector investment in low carbon heat, transport and natural capital. [1]  

Alex White added: “We urge the government to respond promptly to the Green Finance Taskforce recommendations and ensure green finance delivers meaningful benefits to the UK’s real economy. For example, the development of a green mortgage market must be underpinned by net zero carbon standards in new buildings and fiscal incentives to retrofit existing buildings to become more energy efficient.”  

[1] The Aldersgate Group recently published a report on green infrastructure investment, Towards the new normal: increasing investment in the UK’s green infrastructure which considers how greater policy detail in the Clean Growth Strategy and 25 Year Environment Plan can deliver cost-effective pipelines of green infrastructure projects. It also suggests changes to financial regulations to encourage long-term investment in green infrastructure, targeted public spending to crowd in private sector investment in complex projects, the issuance of a sovereign green bond to help plug the likely drop in funding from the European Investment Bank after Brexit and it greater mandatory business disclosure of climate and environmental risks to better inform investment decisions. 

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Green Finance Taskforce sets clear to-do list for government

28th March 2018

The Aldersgate Group, which sits on the Green Finance Taskforce (GFT), urges the government to rapidly implement the GFT’s recommendations published today. However, based on the findings of its recent report [1], the Group warns that these recommendations will only be fully effective if the government also provides the policy detail that is needed under the Clean Growth Strategy and 25 Year Environment Plan to create a pipeline of green infrastructure projects which can be invested in.  

Nick Molho, Executive Director at the Aldersgate Group said: “Today, the Green Finance Taskforce recommends a comprehensive set of measures which, if implemented together, will make investment in green infrastructure projects more attractive. The recommendations for government to develop a National Capital Raising Plan, increase fiscal incentives for investment in green projects, require investors to consider environmental risks and make it compulsory for businesses to disclose how they are coping with climate change risks are all critical to moving the needle on green finance. The Taskforce has suggested a wide range of actions beyond the top recommendations, which the government should consider in full.
 
However, to be fully effective, implementation of these recommendations must be accompanied by more policy detail under the Clean Growth Strategy and 25 Year Environment Plan. If we want financial institutions to ‘green’ their investments, there needs to be a pipeline of green infrastructure projects for them to invest in. This will only happen if government provides more clarity in the coming months on the regulations and incentives that will be introduced to encourage investment in the energy efficiency of buildings, on- and offshore wind, low carbon heat, electric vehicles and the natural environment.”  

[1] Aldersgate Group, Towards the new normal: Increasing investment in the UK's green infrastructure, March 2018. Following a one-year project with businesses and investors, this report identifies the key barriers to greater investment in green infrastructure in the UK and makes key recommendations for government to grow investment in green infrastructure at the speed and scale needed to meet the objectives of the Clean Growth Strategy and 25 Year Environment Plan.

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Overcoming barriers to green infrastructure investment is a major opportunity for the UK

12th March 2018

Today, the Aldersgate Group publishes a new report Towards the new normal: increasing investment in the UK’s green infrastructure. This report, which concludes a one-year research project underpinned by multiple interviews with businesses and investors, argues that overcoming the barriers currently limiting private investment in green infrastructure is essential to delivering the Government’s economic, industrial and environmental policy objectives. It sets out key recommendations for government, businesses and investors to unlock greater volumes of private investment to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan.

This report will be launched at an event hosted by Bank of America Merrill Lynch at 11.30 on Monday 12th March [1].

Increasing private investment in green infrastructure represents a huge opportunity for the UK. It is a growing market for the professional services industry, and is a crucial way of reducing the cost of capital to meet the UK’s environmental and industrial policy objectives, presenting a significant opportunity in terms of job creation and potential exports. There is real urgency: up to £693bn investment in low carbon infrastructure will be needed by 2031 in the UK [2] to deliver policy objectives, with $90tn needed worldwide over the next 15 years [3].

To tackle the huge investment needs ahead and maximise the opportunities from a growing green investment market, this report puts forward 30 recommendations for government, business and investors. In particular, the report recommends that the UK government should:

  1. Commit to support the growth of green investment over the long term through the Clean Growth Inter-Ministerial Group, with a stated remit to boost green finance up to and beyond the delivery of the fifth carbon budget

  2. Set long-term visibility and transparency on policy direction through multi-year, cross-party frameworks, as has been the case with carbon budgets and the coal phase out, noting that after Brexit, EU-led policy drivers for investment may cease to apply. Government should build on the progress made in the Clean Growth Strategy (CGS) and 25 Year Environment Plan (25YEP) with greater policy detail to deliver ambitions, such as through measures to ensure all existing homes reach a level of energy efficiency of EPC band ‘C’ by 2030

  3. Engage a wider base of investors by establishing the potential size of the market for different infrastructure needs within the CGS, 25YEP and forthcoming Resources and Waste Strategy, such as expected spending on low carbon transport infrastructure, to help clarify the investment opportunity

  4. Expand UK reporting requirements to capture a larger set of reporting companies in the immediate term, and set a medium-term target for mandatory introduction of the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFDs)

  5. Adjust financial regulations to encourage long-term investment in green infrastructure, including through introducing a legal duty for all fiduciaries (such as pension fund trustees) to consider financially material environmental and social governance (ESG) risks and considering how a green supporting factor could help address market barriers arising from capital weighting requirements

  6. Introduce flexible and smart regulation to generate reliable revenue streams for investment in newer or complex markets like natural capital and energy efficiency, including a legally binding environmental net gain approach, as promised in the 25YEP, and the resumption of a carbon price escalator from the 2020s

  7. Ensure that all planned infrastructure spending passes a ‘green’ test to avoid locked in emissions and maximise resilience against flooding and future climate-related impacts

  8. Create targeted funds with cornerstone public funding to tackle difficult or less mature investment areas, such as domestic energy efficiency and natural capital, with a requirement to leverage in private capital and recycle funds for reinvestment

  9. Embed sustainability requirements in all public procurement, including supporting local government with standardised Power Purchase Agreements and energy management services contracts

  10. Issue a sovereign green bond and municipal green bonds to help fund the delivery of the 25YEP and CGS and address a potential drop in financing from institutions such as the European Investment Bank

The report, which comes shortly ahead of the publication of the government’s Green Finance Taskforce recommendations, brings together findings from the Aldersgate Group’s year-long project on green finance with the Centre for Understanding Sustainable Prosperity (CUSP) [4].

The report is released in conjunction with four separate briefings from the Aldersgate Group, which explore in detail several of the specific barriers and solutions to key types of green infrastructure investment: Increasing investment in domestic energy efficiency; Increasing investment in commercial energy efficiency; Increasing investment in low carbon power, and; Increasing investment in natural capital, which was first published in November 2017.

Alex White, lead report author and Senior Policy Officer, Aldersgate Group, said: “Over the next three decades, the UK needs hundreds of billions of private investment in green and resilient infrastructure to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan. But investment isn’t happening fast enough on its own. Government must catalyse action on green infrastructure investment now to move the financial system towards a new normal if we are to meet our policy goals cost effectively while maximising benefits for UK plc.

This should include making a long-term commitment to address the structural barriers to infrastructure investment in the financial system, helping establish new and profitable markets through targeted government investment in complex green infrastructure areas and, crucially, building an investment pipeline through greater clarity and visibility of future policy.”

Jane Pilcher, Group Treasurer, Anglian Water, said: “We welcome this new report from the Aldersgate Group and its call to support the growth of green investment over the long term. Anglian Water has committed to a range of ambitious environmental goals, including pledging to become a carbon neutral business by 2050. We have already reduced embodied carbon by 55% from a 2010 baseline and we aim to reach 60% carbon reduction by 2020. Based on this work we were able to issue the very first public utility sector green bond and we are pleased that this is featured as a case study in the report.”

Steve Waygood, Chief Responsible Investment Officer, Aviva Investors, said:  “At Aviva Investors we are committed to being long-term, responsible investors. We welcome this new report from the Aldersgate Group and its clear and realistic solutions to unlock greater flows of investment in low carbon infrastructure, particularly clarifying fiduciary duty and the need for mandatory introduction of the TCFD recommendations.  

We also welcome the call to use the dormant assets within the insurance and investment sectors to introduce a national financial literacy campaign to educate people about how their money is invested and how this shapes the world they retire into.  This would help create sustained demand for sustainable investment, helping to grow the UK economy on a longer term and more sustainable basis for the future.”

Tim Jackson, Director, Centre for the Understanding of Sustainable Prosperity, University of Surrey, said: “Prosperity depends on us investing wisely in a resilient, green infrastructure fit for the future. The Aldersgate Group’s new report provides the kind of visionary and yet pragmatic steps required to achieve this task. All we need now is clear-sighted governance to put these recommendations into practice, and to ensure that our financial system works in the service of a sustainable and lasting prosperity for everyone.” 

Emma Howard Boyd, Chair, Environment Agency, said: “Some businesses are already alive to the risks and opportunities presented by climate change, but not enough. The UK can show international leadership with financial innovation to counter increased risks from droughts and storms. The Government’s Green Finance Taskforce is currently discussing how to accelerate investment in resilience, so this report is timely and helpful.”

Edward Northam, European Head, Green Investment Group, said: “The UK has made extraordinary progress towards its climate goals for 2020, demonstrating private investors’ appetite for low carbon infrastructure and building a world-leading capability in green finance.

With the nation facing more demanding objectives in the next decade and beyond, this report sets out a collaborative framework for government and investors that could prove vital in managing risk, mobilising capital and securing the next generation of green infrastructure investment.”

Morten Sørensen, Senior Project Finance Specialist - Financial Solutions, MHI Vestas Offshore Wind, said: "The Aldersgate Group's report on green finance provides valuable and quick insight into the finance requirements needed to drive further growth of the UK’s low carbon technologies. These investments are significant and have long repayment horizons. At MHI Vestas Offshore Wind, we share the view that long-term planning and the right policy environment is required, such as through continued CfD auctions to attract greater private sector investment.

This report recommends solutions to bridge the gap in investment between current levels of finance and what we need to meet the UK’s climate targets, and we welcome the report’s support of offshore wind as playing a crucial role in this.”

[1] Towards the new normal: how to increase investment in the UK's green infrastructure. This event will be held from 11.30am - 1.00pm on Monday 12th March at Bank of America Merrill Lynch, 10 Newgate Street, London, EC1A 7HD. Chaired by Martin Wolf CBE, Chief Economics Commentator at the Financial Times, the event will open with introductory remarks from Abyd Karmali, Managing Director - Climate Finance at Bank of America Merrill Lynch. Panellists include Jane Pilcher, Group Treasurer, Anglian Water; Steve Waygood, Chief Responsible Investment Officer, Aviva Investors; Emma Howard Boyd, Chair, Environment Agency; Gavin Templeton, Head of Sustainable Finance, Green Investment Group; and Peter Highmore, Lead Transaction Manager - Structured Solutions, Ørsted. 

[2] Vivid Economics (October 2011) The economics of the Green Investment Bank: costs and benefits, rationale and value for money

[3] New Climate Economy (2016) The sustainable infrastructure imperative

[4] The Centre for Understanding Sustainable Prosperity is an international, multi-disciplinary research project, addressing not just the economic aspects of sustainable prosperity, but also its social, political and philosophical dimensions. Working closely with business, social enterprise, civil society and government, the Centre aims to develop pragmatic steps towards an inclusive economy that works for everyone. www.cusp.ac.uk


Aldersgate Group welcomes BEIS green finance taskforce

18th September 2017

Reacting to the announcement of the Department of Business, Energy and Industrial Strategy’s green finance taskforce today, Nick Molho, Executive Director of the Aldersgate Group said: “The creation of a new taskforce on green finance is a very positive move forward and we are delighted to have been asked to assist the work of the taskforce. Investment needs in the green economy are ever-growing, with the Committee on Climate Change estimating the total annual investment needed to meet the UK’s fifth carbon budget at approximately £22bn [1]. Meeting domestic and international policy commitments on climate change and the environment will therefore require a significant amount of affordable private finance. With growing strengths in areas such as offshore wind and electric car manufacturing, the UK now faces a unique opportunity to broaden its competitive advantage in the low carbon economy by establishing itself as a world leader in the provision of green finance."

Nick Molho added: "The Aldersgate Group has been looking at ways of increasing private investment in green infrastructure through our work with the Centre for Understanding Sustainable Prosperity (CUSP). We look forward to using our findings to support the UK government in developing a green finance strategy to underpin the forthcoming Clean Growth Strategy and the Industrial Strategy.”

[1] Committee on Climate Change (November 2015) Advice on the fifth carbon budget. £22bn figure based on 1% of £2.23tn GDP in 2015 (US$2.86tn) World Bank national accounts data http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

 

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Government Must Develop A New Finance Strategy After Completed Sale Of Green Investment Bank

18th August 2017

Reacting to today’s announcement of Macquarie’s completed purchase of the Green Investment Bank (GIB), renamed the Green Investment Group (GIG), Nick Molho, Executive Director of the Aldersgate Group, said:

“Following the successful completion of the sale of the GIB today, we call on the new Green Investment Group (GIG) to honour their commitment to support investment in the UK’s renewable energy infrastructure. The GIG is ideally placed to lead private sector investment in UK green infrastructure projects and help deliver key government policy commitments such as those that will be set out in the upcoming Clean Growth Plan.”

Nick Molho added: “Delivering the government’s ambitions under the Clean Growth Plan and 25 Year Environment Plan will require supporting novel technologies and business models which may initially struggle to access finance. Now that the sale of the GIB is complete and given that the UK’s access to funds from the European Investment Bank is likely to be more restricted after Brexit, the government needs to develop a clear finance strategy in the near future. This strategy should aim to crowd in private sector investment in the new technologies and business models the UK will need to deliver on its environmental commitments and build a thriving low carbon economy.”

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UK low carbon ambitions must be made clear to investors

29th June 2017

Reacting to the publication today of the Progress Report from the Committee on Climate Change, Nick Molho, Executive Director of the Aldersgate Group said:

“If the UK is to significantly cut its emissions and modernise its buildings, energy and transport infrastructure in the next 15 years, the private sector must urgently understand the scale of the UK’s ambitions and the market arrangements under which it can invest in that infrastructure. Greater clarity is particularly needed on the policies that will drive emissions reductions in domestic and commercial buildings.”

“The EU referendum and recent General Election have resulted in some understandable delay in developing such a plan for businesses and investors. However, if low carbon infrastructure is to be delivered on time, at the lowest possible cost and in a way that grows UK supply chains, the government must deliver on the Minister’s intention to publish the Clean Growth Plan when Parliament returns from the summer recess.[1]”

Reacting to the key findings of the Progress Report on the UK’s adaptation to climate change, Nick Molho added:
 
“The limited progress being made to tackle the degradation of the UK’s natural environment and better protect its infrastructure from the impacts of climate change is concerning. In the coming year, we need to see a concerted effort across government departments to develop a detailed National Adaptation Plan and 25 Year Environment Plan. These plans must attract much greater investment to improve the state of key natural resources such as coastal wetlands, peatlands and soil and ensure the UK’s infrastructure and economy are resilient in the face of more extreme weather events.” 

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Business case for disclosing climate risks is overwhelming

29th June 2017

Reacting to the publication today of the final recommendations by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), Nick Molho, Executive Director of the Aldersgate Group said:

“The publication of the TCFD’s industry-led recommendations cements the importance within the investment and business communities of disclosing the physical, regulatory and commercial risks linked to climate change. There is growing recognition that understanding how this information may impact company or asset performance is essential to enable businesses to make sensible long-term strategic decisions and to give investors the information they need to shift their investments towards more resilient and lower carbon business models.”
 
Nick Molho added: “These recommendations on standardised voluntary disclosure will act as an influential guide for investors and businesses across the economy. However, in light of the urgency of tackling climate change, mandatory regulations remain essential to ensure that climate-related disclosure is widely adopted in the near future and is consistent and comparable between companies of a same sector. Given the UK’s aim to become a hub for green finance, the government should take note of the ambition of these recommendations and strengthen the breadth and scope of its own mandatory carbon reporting regulations in line with the industry standard.”  

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New owners must ensure Green Investment Bank plays key role in UK decarbonisation challenge

20th April 2017

Reacting to today’s announcement that Macquarie will be the new owner of the Green Investment Bank (GIB), Nick Molho, Executive Director of the Aldersgate Group, said:

“The GIB has added real value to the UK green infrastructure market through a focus on funding novel green infrastructure projects and crowding in additional private sector investment. We are pleased to see that Macquarie has committed to investing £3bn over three years to grow the GIB’s activities. This is a promising start – particularly combined with its recognition of the skills and expertise of GIB employees in both London and Scotland.

We call on Macquarie to honour these commitments and ensure the GIB plays its part in financing the green infrastructure that will be essential to delivering the UK’s climate and environmental policy objectives in the years ahead. Going forward, we also expect the GIB to continue to engage with stakeholders and report transparently on the impact of its green investments.”

Nick Molho added: “Now that the GIB has been fully privatised and the UK can expect to receive less funding from the European Investment Bank post Brexit, the government must ensure that it has a clear strategy in place to attract private finance to deliver its environmental and low carbon policy objectives. Projects involving new technologies and business models will be required to deliver the UK’s Clean Growth Plan and 25 Year Environment Plan. Targeted government support will be essential to make these projects attractive to private investors such as pension funds.”

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GIB continues important role with completion of its offshore wind fund

13th January 2017

Reacting to the Green Investment Bank’s completion of its offshore wind fund, Nick Molho, Executive Director of the Aldersgate Group said:
 
“The completion of the Green Investment Bank’s offshore wind fund shows that the GIB has played an important role in increasing private sector investment in offshore wind and critically, attracting new kinds of investors to the sector such as local authority pension funds. If privatisation of the GIB goes ahead, the government will have to ensure that it has a clear strategy in place to attract private sector investment in the novel green infrastructure projects that the UK needs to decarbonise its economy.”

offshore-wind

Civil society & business groups set 5 tests Green Investment Bank buyers must pass

18th March 2016

Civil society and business groups have set 5 tests against which any prospective buyers of the Green Investment Bank will be assessed, calling on them to commit to measures that will ensure it continues to act and invest in the public interest.

The Green Investment Bank ‘Public Interest Prospectus’, launched today, sets out the 5 tests which any prospective owners must pass. 

Prospective buyers of the GIB should commit to:

  1. Maintaining the integrity of the GIB as a single, functioning institution;
  2. Deploying at least £4bn of new GIB capital in the UK’s low carbon economy over 3 years;
  3. Scaling up citizen finance;
  4. Keeping the GIB at the forefront of the green infrastructure market;
  5. Ensuring best–in-class standards of governance and transparency.

Nick Molho, Executive Director of Aldersgate Group said: “What has made the Green Investment Bank unique to date hasn’t just been its focus on green infrastructure but the fact that it has been a step ahead of the market, by supporting projects that weren’t attracting sufficient levels of private sector investment. This focus on supporting novel projects, such as complex NHS energy efficiency schemes and offshore wind projects using cutting-edge technology, has allowed the bank to make a real difference by supporting innovation, accelerating cost reductions and delivering supply chain benefits to the UK.

It is in the interest of both the future owners of the GIB and the UK public that funded its creation for the bank to retain its market strength in these areas and to continue to provide genuine added value to the UK’s green finance sector.”

Karla Hill of ClientEarth said: “The GIB is a unique institution, integral to supporting the UK’s cost-effective transition to a low-carbon economy. In the coming years we will need investment in our most important green projects – which is why we have to protect the GIB and its special character now.”

Sepi Golzari-Munro, Head of the UK Programme at E3G said: “To stand any chance of winning civil society and business support, any new investors must commit to maintaining the GIB’s integrity as a single, functioning institution and to deploying at least £4bn of new GIB capital in the UK’s low carbon economy over the next three years. Nothing less will do. “

Angela Francis, Economist at Green Alliance said: “If the GIB can continue to provide first of a kind finance to green projects it will remain a powerful institution, but if this sale leads to the bank losing its distinctive leadership role in market, it will be written up as an experiment that failed”

Doug Parr, Policy Director at Greenpeace UK said: “If Government abandons giving the Green Investment Bank the clarity of purpose that made it such a special institution, then the investors who take it over will need to step up to the plate.”


Future owners must maintain GIB’s focus on novel green infrastructure projects

3rd March 2016

Reacting to the announcement on the start of the sale process for the Green Investment Bank (GIB), the Aldersgate Group welcomed the government’s rethink to create a special share in the GIB but reiterated that maintaining the GIB’s focus on novel projects under its future ownership was key to its long-term value added and success.

Nick Molho, Executive Director of the Aldersgate Group said: “What has made the GIB unique to date has been its ability to be a step ahead of the market by supporting projects that weren’t getting sufficient support from mainstream private investors such as complex energy efficiency projects and offshore wind farms using new technologies. This focus on projects that are both green and novel has allowed the GIB to help tackle important market failures in the area of green infrastructure. Identifying investors with a clear plan and commitment to maintain this current focus must be an important part of the GIB sale process.”

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