UK Government announces post-Brexit plans for green finance, as EU ramps up investment

Andrew Bailey (pictured above), governor of the Bank of England, explained: “A strong future for the financial services industry in the UK is a vital interest for all who rely upon those services, both in this country and across the world.”

The measures announced by the Chancellor include:

• Proposals to commit to introduce a mandatory climate-related financial disclosures framework for a wide range of financial institutions and corporates;
• Proposal to establish a green taxonomy to determine whether an activity is environmentally sustainable.

Bailey added: “The Bank of England welcomes the government’s decision to make disclosures related to climate change risk mandatory for firms by 2025. We also welcome the Chancellor’s announcement that the UK, together with its international partners, will press ahead with work on central bank digital currencies, as we seek ways to make payments ever safer and more efficient.”

Finance at the forefront

Also in the announcement, the Chancellor explained that mandatory climate-related financial disclosure requirements would be introduced by 2025, aligning with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). This is hoped to ensure that both investors and businesses have enough information on the risks and opportunities.

The green taxonomy set to be developed in the UK to determine whether an activity is environmentally sustainable will be based on the scientific metrics originally developed for the EU sustainable finance taxonomy, adjusted to suit the UK market.

Nikhil Rathi (pictured above), chief executive of the Financial Conduct Authority (FCA), said: “The UK is a global financial centre with high regulatory standards and the statement by the Chancellor sets out important steps to ensure that it will remain one.

“We will continue working with the government and the Bank of England to deliver on these measures: advancing work to support well-functioning capital markets, enabling greater investment in long term assets, ensuring the sector contributes to the move towards a low-carbon economy and encouraging responsible innovation in finance.”

Incoming climate stress tests

In a separate announcement, the Bank of England has announced the launch of its climate stress test exercise, to take place in June 2021. Originally due for 2020 but delayed due to the pandemic, the exercise will consist of three climate scenarios and will analyse different combinations of physical and transition risks over a 30-year duration.

According to the Bank, the exercise is aimed to boost the understanding of how participating banks and firms might respond and that risk management processes will be improved as a result.

EU’s €1 trillion green lending plan

Looking abroad, EU governments approved a €1 trillion green roadmap that will see it stop financing fossil fuel projects and airport expansions.

According to the European Investment Bank (EIB), the “Climate Bank Roadmap” had been the focus of great discussion since last year when it was laid out.

The full amount of funds will be spent by 2030 on climate-, biodiversity- and sustainability-focused projects and the Bank has pledged that “all financing activities” will be aligned with the goals and principles of the Paris climate agreement by the end of 2020.

Wener Hoyer, president of the EIB, said: “It is a major contribution to Europe’s role leading the way toward decarbonisation and a green, resilient and socially inclusive economy.”

The EIB also announced its decision to end financial support for fossil fuels from 2021, after marathon talks ended in a compromise which is set to provide a boost for green policies.

The joint UK Government Regulator TCFD Taskforce has released two documents that set out an indicative approach to implementing the disclosures across a wide range of financial sectors in the UK:

– https://assetfinanceconnect.com/wp-content/uploads/2020/12/FINAL_TCFD_REPORT.pdf
– https://assetfinanceconnect.com/wp-content/uploads/2020/12/FINAL_TCFD_ROADMAP.pdf