Progress made at COP26 with ambitious commitments to prioritise
investment in low carbon industries and into protecting nature
risk being undone through mixed messaging from the Government,
the Environmental Audit Committee argues today.
In its report on ‘The financial sector and the UK’s net zero
transition’, the Committee states that the Government’s position
to shift the onus of responsibility to the private sector, and
rely on market mechanisms, does not go far enough. In 2021 alone,
global banks provided financing for approximately $742 billion
towards fossil fuels, and investment in fossil fuels continues to
outpace significantly that of renewables. Continued leadership,
and a robust framework, is required from the Government. There
are concerns that relying on investor behaviour will not move the
dial fast enough in terms of tackling the nature and climate
crises.
During the inquiry, the Committee heard that the UK Government
holds the position as being out in front of the peloton with
other countries following its lead in terms of transition
planning with some of the largest companies and financial
institutions in the country. The Global Green Finance Index has
also placed London as the leading green finance centre for the
fourth year running in 2023. To maintain these positions, the
Committee is calling on the Government to take forward a number
of initiatives announced at COP26.
The Committee is concerned that the ‘comply or explain’ approach
to mandatory transition plans by companies defeats the point of
the policy, as a company could meet the requirements by simply
disclosing that it does not have a plan. The Committee urges the
Government to move towards making transition plans mandatory for
companies while effectively monitoring and evaluating their
effectiveness. It also recommends that the Government must phase
in compulsory Taskforce on Nature related Financial Disclosures
(TNFD) over the next three to five years. Following the recent
Autumn Statement and speculation that the Government can progress
with a Carbon Border Adjustment Mechanism, the Committee repeats
earlier recommendations for this to be implemented as soon as
possible.
The Committee is concerned that the ‘stop start’ approach of the
Government maintaining its ambitions while delaying policy
initiatives risks giving mixed messaging to the financial sector
which could slow the net zero transition. Witnesses told the
Committee that the same can be said of fossil fuels seemingly
being prioritised in the name of energy security since Russia’s
invasion of Ukraine. To keep the Government on track, the
Committee is urging it to publish quarterly reports that
highlight its move towards greater energy independence while
staying on track to meet net zero. An independent body should
also be tasked with tracking net zero and nature-related
financial flows, as well as investment in high-carbon projects.
Environmental Audit Committee Chair, Rt Hon MP, said:
“Globally, banks continue to pump trillions of dollars into
fossil fuels, and simply put, we are not turning the dial fast
enough to tackle the climate and nature crises. Enormous strides
have been made in the last few years to champion a low carbon
economy, but we’re at risk of this good work stalling through
complacency.
“The UK should be proud of its long-held position in front of the
peloton, with other governments following its lead. London is the
number one financial centre for commitments to environmental
improvements both directly in finance and across the wider
economy.
“But this alone is not enough. At COP26, the Government made
ambitious commitments to make even greater progress in embedding
climate and nature into financial decision making. The Government
should implement swiftly its initiatives on mandatory transition
plans, a UK green taxonomy, and carbon leakage mitigation
measures. Any delay is likely to send mixed messages to the
financial sector that the UK is wavering on its ambitions, as set
out at COP26, to become the first net zero-aligned financial
centre. The Government must turbocharge its efforts once again in
green finance: it is an enormous opportunity to shape the carbon
financial markets of the future, yet the market alone cannot
revolutionise in the way needed. The Government must not
underestimate its own influence.”
Notes to editors:
- The full list of conclusions and recommendations can be found
on page 58 of the report.
