The UK needs to advance its green finance agenda or risk falling behind as rivals pursue ambitious regulatory and subsidy programs, according to an expert panel advising the government.
(Bloomberg) — The UK needs to advance its green finance agenda or risk falling behind as rivals pursue ambitious regulatory and subsidy programs, according to an expert panel advising the government.
The nation’s Green Technical Advisory Group said in a report the government should provide clarity to investors on what a green investment is through a so-called taxonomy. The UK’s rules should encourage cross-border investing and seek to be consistent with other jurisdictions where possible, it said.
The intervention comes as governments and investors react to the US Inflation Reduction Act, which will provide about $370 billion to support climate- and energy-related technologies geared at addressing the challenge of reducing emissions. The EU has since proposed its own Green Deal Industrial Plan as well as a Net-Zero Industry Act to simplify regulations.
“With the US and EU — the two biggest markets that UK investors currently deploy capital into — raising the stakes with a massive green subsidy and pro-green business regulatory push, the UK will need to significantly raise its own game to attract capital seeking net zero opportunities,” said Ingrid Holmes, chair of GTAG. “Providing investor certainty that green investment opportunities are growing and climate ambition is here to stay will be key to strengthening the UK’s global offer.”
GTAG, which was established in 2021 to help formulate a taxonomy, provides non-binding advice. But it helps sets the parameters for the UK debate around environmental, social and governance investing as officials try to position Britain as a sustainable-finance hub. Andrew Griffith, economic secretary to the Treasury, said Monday the UK will publish its updated green finance strategy “in the coming months.”
When it comes to its green taxonomy, the UK is playing catch up with the EU, where the bloc has built an ESG regulatory framework that’s widely seen as a global benchmark. The UK’s Financial Conduct Authority is separately developing anti-greenwashing rules for investors, which steer clear of some of the main features of Europe’s Sustainable Finance Disclosures Regulation.
Read more: JPMorgan Strategy Shows US Climate Act’s Effect on Wall Street
GTAG said in October that divergence from the EU’s taxonomy would potentially leave the investment industry facing more post-Brexit paperwork, with investors, banks and companies subject to both jurisdictions’ regulations. That said, it advocated for the UK to go its own way in its treatment of sectors such as real estate, shipping, bio-energy and hydrogen.
“The UK is well placed to help address the challenge of global market fragmentation, while at the same time securing its leadership on green and transition finance through a scientifically robust and usable taxonomy,” said Holmes.
The UK is also homing in on biodiversity, which is gaining attention after the COP15 summit agreement. This week Britain confirmed that from November new housing, commercial and infrastructure developments must deliver a 10% “biodiversity net gain.” It also released guidance for a national system whereby landowners, tenant farmers and businesses that create or enhance habitats can sell biodiversity and nutrient credits. The government plans to announce the metric for calculating biodiversity credits later this year.
“Although the system is not yet comparable to carbon emission trading system markets, we see this as a key step towards quantifying natural capital,” said Barclays Plc analysts including Hiral Patel.
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