Environmental Audit Committee launches new inquiry into Green Finance

The Environmental Audit Committee is today launching a new inquiry to scrutinise the Government’s strategy to develop ‘world leading Green Finance capabilities’.

The inquiry will examine:

• ·         the measures set out in the Clean Growth Strategy;
• ·         whether the Green Investment Group, formerly the Green Investment Bank, is fulfilling commitments made by its new owners Macquarie;
• ·         the UK’s future relationship with the European Investment Bank;
• ·         how company reporting on climate liabilities and risks could be encouraged; 
• ·         whether the Government’s policies are likely to deliver the levels of investment needed to meet the UK’s national and international environmental commitments.

Environmental Audit Committee Chair, Mary Creagh MP, said: 

“The UK needs billions of pounds of public and private investment to decarbonise the economy and upgrade our transport, energy and industrial infrastructure.

The Government says it wants to be a global leader in green finance. We will scrutinise its plans in the Clean Growth Strategy, look at the Bank of England’s proposals on disclosure of climate-related financial risk, and examine what will happen to UK climate investment if we leave the European Investment Bank."    

Terms of reference

The Committee is interested in how investment in longer-term sustainable development can be incentivised across the economy. It is inviting written submissions on some or all of the following points:

• ·         How can the structure of incentives across the investment chain be changed to promote long-term sustainable development?
• ·         Is the Government’s level of ambition on green finance - and the mechanisms it sets out in the Clean Growth Strategy – sufficient to generate the investment needed for the UK to meet its environmental commitments?
• ·         How will the Clean Growth Strategy feed into the work underway by the World Benchmarking Alliance on how an SDG index could be established?
• ·         Is the Green Investment Group (GIG) fulfilling commitments made by Macquarie to ensure the Bank ‘remain[s] one of the leading investors in green infrastructure in the UK and Europe’?
• ·         How will leaving the EU affect the UK’s ability to leverage investment into low-carbon and environmentally friendly projects in the UK?
• ·         What options are there for the UK’s future relationship with the European Investment Bank? What would be the implications for green investment in the UK?
• ·         Given the work being carried out by the EU’s High Level Expert Group on Sustainable Finance, where should the UK’s newly created Green Finance Taskforce concentrate its efforts?
• ·         How effective are the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations likely to be at moving investment into ‘clean’ sectors?
• ·         The Government has said it will ‘encourage’ publicly-listed companies to adopt the TFCD’s recommendations on climate risk disclosure. How could it do this? Is a voluntary approach sufficient?

Deadline for submissions

We are asking for written submissions of evidence by 12pm on 3 January 2018. The word limit is 3,000 words. Please send written submissions using the form on the inquiry page on the EAC site. The Committee values diversity and seeks to ensure this where possible. We aim to have diverse panels of Select Committee witnesses and ask organisations to bear this in mind if asked to appear.

BACKGROUND

The Clean Growth Strategy

The Government’s Clean Growth Strategy sets out how more than £2.5 billion will be invested by the Government to support low carbon energy innovation from 2015-2021. The strategy says it will accelerate clean growth by developing world leading Green Finance capabilities. It promises to:

• •        Set up a Green Finance Taskforce with senior representatives from the finance industry and Government to develop ambitious policy proposals which could further accelerate private sector investments to deliver our Clean Growth Strategy;
• •        Work with the British Standards Institution to develop a set of voluntary green and sustainable finance management standards to promote responsible investment practices;
• •        Provide up to £20 million to support a new clean technology early stage investment fund;
• •        Work with mortgage lenders to develop green mortgage products that take account of the lower lending risk and enhanced repayment associated with energy efficient properties;
• •        Endorse the recommendations put forward by the Financial Stability Board's Task Force on Climate-related Financial Disclosures and encouraging publicly-listed companies to implement these recommendations;
• •        Allocate an additional £1.8 billion from the Local Growth Fund for a new set of Growth Deals between Government and Local Enterprise Partnerships (LEPs).6

The role of the Green Investment Group

The inquiry will examine whether the Green Investment Group is fulfilling commitments made by its new owners, the Australian Macquarie Group Limited, regarding its green purposes. The Government completed the Green Investment Bank privatisation on 18 August 2017 with the sale to Macquarie. In response to fears about its future raised by the Environmental Audit Committee, Ministers created a ‘special share’ in the GIB to protect its green purposes. This is held by the Green Purposes Company with five independent trustees, who have the power to approve or reject any changes to the GIB’s purposes in the future.

Macquarie has committed to the GIB’s target of leading £3 billion of investment in green energy projects over next 3 years. It also announced that the Bank will now operate under the name Green Investment Group in order to overcome the legal and regulatory barriers to using the term ‘Bank’ in some international markets. It says it will pursue a vision ‘to invest in green infrastructure internationally and positively contribute to the globalisation of the renewables industry’.

The European Investment Bank

The inquiry will look at the UK’s future relationship with the European Investment Bank (EIB), an EU development bank owned by the Member States. Over the past five years (2012-2016) the EIBhas invested over EUR 31.3 billion in the British economy, including more than GBP 13.4 billion in ‘climate projects’. This includes onshore and offshore windfarms, sustainable transport and energy efficient public buildings and social housing in England, Wales, Scotland and Northern Ireland. The future of that funding may be in question after the UK leaving the European Union.

Green Finance Taskforce and EU High Level Group on Sustainable Finance

The Committee will explore the cross-over between the UK’s newly created Green Finance Taskforce and the EU High Level Group on Sustainable Finance which published its interim report in July. The EU High Level Group is due to publish its final report by Jan 2018. Its interim report recommended a number of measures, which are now being explored by the Commission, including:

• •        A classification system for sustainable assets;
• •        A European standard and label for green bonds;
• •        A fiduciary duty that encompasses sustainability;
• •        Better disclosure from financial institutions and companies on how sustainability is factored into decision-making;
• •        A 'sustainability test' for relevant EU financial legislation.

The Task Force on Climate Disclosure (TCFD)

In 2014, the Environmental Audit Committee published a report on green finance that called on the Financial Policy Committee of the Bank of England to monitor the risk of a ‘carbon bubble’. The Governor Mark Carney wrote to the committee in October 2014 saying that “the FPC would consider the [carbon bubble] issue as part of its regular horizon-scanning work on financial stability risks”. The Bank of England went on to establish the Task Force on Climate Disclosure.

On the 29 June, the Bank of England Financial Stability Board Task Force on Climate Disclosure (TCFD) unveiled guidelines for helping companies manage ‘climate risks’, be they physical, regulatory, or related to changing technologies and markets. The Task Force recommends that companies should provide climate-related financial disclosures in their public financial filings to foster shareholder engagement and broader use of climate-related disclosures in decision making. Firms including Unilever, Marks & Spencer, Schneider Electric and HSBC have promised to adopt the TCFD guidelines. The Environmental Audit Committee is keen to explore how the Government can encourage more companies to adopt the TCFD’s proposals.