On 30 March 2023, the Government published the 2023 Green Finance Strategy.
The Green Finance Strategy represents the latest policy blueprint developed by HM Treasury, the new Department for Energy Security and Net Zero, and the Department for Environment, Food and Rural Affairs, aimed at seizing the opportunities and managing the financial risks arising from climate change and ensuring the necessary finance flows to the UK’s net zero, energy security and environmental industries. The strategy sets out how the Government will pursue its ambition to become the world’s first net zero-aligned financial centre, equipping the market with the information and tools necessary to drive the transition. The strategy also sets out the next steps on transition planning and the UK Green Taxonomy to ensure green finance markets are robust.
The strategy aims to reinforce and expand the UK’s position as a world leader on green finance and investment, delivering five key objectives:
- UK financial services growth and competitiveness – The Government notes that the UK “can and will do more” to support the financial services sector to prosper from a transitioning global economy.
- Investment in the green economy – The Government estimates that to deliver on the UK’s net zero ambitions, through the late 2020s and 2030s, an additional £50-60 billion capital investment will be required each year. It says this investment will support the sectors and technologies of the future, enable traditional sectors to adapt and thrive as part of the transition and presents a significant opportunity to level up the UK, including those parts with an industrial heritage.
- Financial stability – The strategy states that an effective green finance framework will ensure the finance sector has the information it needs to manage risks from climate change and nature loss.
- Incorporation of nature and adaptation – There has been significant progress on nature finance both domestically and internationally since 2019, culminating in the commitments on finance made in the Kunming-Montreal Global Biodiversity Framework agreed at the UN Convention on Biological Diversity COP 15 in December 2022. To reflect these developments as well as calls from industry for an integrated approach, the strategy will explicitly incorporate both nature and climate adaptation into the Government’s green finance policy framework.
- Alignment of global financial flows with climate and nature objectives – The strategy notes that the UK can capture a huge economic opportunity by supporting the global transition, whilst building closer relationships with high growth emerging markets and developing economies as they seek to meet their own financing needs.
Notably, within the strategy, the Government proposes to classify nuclear energy as ‘green’ in its upcoming list of activities that can count as sustainable investment (the UK’s Green Taxonomy). The Government plans to consult on the Green Taxonomy in the autumn. After the Taxonomy has been finalised, companies will be given a period of at least two reporting years to adapt to the rules, after which the Government will explore mandating disclosures.
As part of its broader green finance strategy, the Government has also announced plans to give the financial regulator a new mandate to regulate ESG ratings firms.