Another week, another government plan to save the planet (hooray?…). This week it’s the UK’s Green Finance Strategy – the long-delayed blueprint for how government and businesses are going to mobilise British money to meet some of the world’s most pressing environmental challenges.
Coming just days after the UK enshrined net-zero emissions by 2050 into law, Prime Minister Theresa May managed to squeak the plan through as one of her last acts as British leader (while her political legacy won’t make happy reading, perhaps her environmental one might).
The Green Finance Strategy has some really positive stuff in it. The headliner being that the government now wants companies, banks and investment managers to report on how their activities are falling in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations by 2022; effectively asking them to prove how they are managing climate risk in their businesses.
It has also sharpened its teeth in other regulatory areas, stating that it is further clarifying rules for how big dogs in the finance world like the Financial Conduct Authority (FCA) and The Pensions Regulator need to make sure that they are encouraging all parts of UK Plc to achieve the Paris 2015 climate goals.
Moreover, the government says it will be working with the FCA and the Bank of England to “consider steps that can be taken to understand the potential or actual barriers to the growth and effectiveness of green finance markets” through the Fair and Effective Markets Review.
Commenting on these moves, Louisiana Salge at Good Egg Company EQ Investors, says: “While the reporting requirement might initially seem as just another page in an annual report, we think it could bring the much-needed transparency that can inform better investment decision making, and help distinguish ‘dark green’ from ‘greenwashing’ company initiatives and investments.
“Ideally, it would be good to extend reporting to the positive outcomes created by investments too – like we will be doing once again in our annual impact report ,to be published in September.”
Green housing boost
As well as focussing on the top level, the strategy also outlines how it plans to support other parts of the economy to go green. Notably, this includes a new £5 million Green Home Finance Innovation Fund.
Over 18 months the government says the scheme will pilot green home finance products that have “sustainable business models, incentivise energy efficiency retrofit, and are supported and promoted effectively by the lender.”
The report says the pilot will “test the extent to which green finance products are attractive to consumers, drive energy efficiency works and can be self-sustaining.”
Paul Ellis, chief executive of Ecology Building Society – the UK’s only provider of green mortgages for eco-home builds and improvements – says: “We’re looking forward to seeing more details on the Green Home Finance Innovation Fund which will need to deliver the creation of long-term sustainable financial solutions to help retrofit the UK’s aging housing stock.
“As an organisation that has been providing green mortgages for over 30 years, we’ve proved that incentivising energy efficiency through mortgage pricing works by basing our mortgage rates on a property’s climate impact, leading to real savings in carbon emissions, we welcome this new focus on green finance – at long last.”
Salge, however, does not think that this goes far enough, especially given that the UK’s residential buildings account for 20 per cent of all our greenhouse gas emissions.
She adds: “We are hoping to see a lot more public capital directed at green solutions within the UK, but also that the spending will look at climate change as the global phenomenon that it is – aligning public spending abroad too. Last year alone, £2 billion went to overseas fossil fuel projects.
Missing out on our money
Salge also observes that there is precious little in the report looking at how government can encourage everyday people like you and me to get involved in green finance – from switching to a better bank, to going green on our insurance to investing sustainably in or pensions and stocks and shares ISA’s.
“The strategy does not once refer to mobilising individuals’ savings or pensions to green solutions, despite the title ‘improving access to finance for green investment’,” she says.
“From our experience, once individuals understand that they can align their investments with their values, there is an overwhelming wish to move it from contributing to the ‘blockers’ to a sustainable world and ‘business-as-usual’, to the solution-providers.”
Regular readers of Good With Money will know that this is absolutely our jam: showing people that they CAN make a positive difference with their money, and how to do it. The government, however, seems less inclined to do so.
Before we go hard on the criticism, though, we should note that there is a reason for this. The finance industry is rife with mis-adventures in the private investment sector and regulation – especially since 2008 – means many areas of money are all bundled up in red tape (lumpily bundled, with some gaping holes, mind).
Thus, the government is likely playing it safe by steering clear of the personal finance sector. By doing so, though, they are not only missing out on an enormous source of financing for the sustainable economy (the World Bank estimates that 80 per cent of funding needed to achieve the UN sustainable development goals will need to come from the private sector) – it is doing us all a disservice.
As is often written, Britons’ level of financial knowledge and awareness is woeful at best. According to the OECD, financial literacy is below average for G20 countries in the UK, with the country ranking behind both Brazil and Indonesia for financial savvy.
More action needed May
Despite government efforts to introduce financial education in schools, apparently most students still don’t know the difference between a credit and a debit card. A lack of understanding around inflation and interest means we are still saving mainly in cash – losing money every year – while most of us are blissfully unaware that our pensions are actually being invested in financial markets, and always have been.
Finance is still seen as something scary, complicated and not for the average person in the UK. Combine this with a general sense that it is all bit evil, and getting people to engage with their finances, let alone put their money to Good use in changing the global economy becomes a gargantuan task.
Of course, the government couldn’t solve all this with the Green Finance Strategy. What it could do, though, is at least try to engage with the average person on how to fo better with their money. Without this, we’re really not going to get anywhere.
Ellis concludes: “While there are positive steps, there isn’t much evidence in this strategy of ‘turbo-charging’ the UK’s green finance sector, as Ministers have suggested. The pace of change needs to be accelerated and we need to urgently move beyond the age of pilots and reports to tangible actions at scale at soon as possible if we are to avoid the catastrophic human and ecological impacts of the climate crisis.”