Experts examine barriers and solutions to greening our financial system

A roundtable convened by Peers for the Planet and supported by Friends Provident brought together new economy experts - an emerging policy field that moves beyond classical economic theory to address issues like social justice, inequality, and climate change - to explore how the financial system, both in the UK and overseas, could accelerate its contribution to net zero and a shift to low carbon and nature-positive investment.

Efforts to solve this complex challenge are critical to climate action, with the International Energy Agency estimating that fossil fuel investment must more than halve from 2024 levels by 2030, while clean energy investment must almost triple over the same period to reach net zero by 2050. Participants were invited to give their views on structural barriers slowing progress and propose solutions which could help speed up the shift of financial flows away from carbon-intensive industries towards sustainable alternatives.

The discussion took place against a backdrop of the Treasury’s stated ambition to “make the UK a global leader in sustainable finance”, but also one where broad ambition and a strong interest in Parliament to put in place changes, have yet to translate into significant progress in greening finance. 

Obstacles identified included policy uncertainty, the absence of regulatory deterrents for fossil fuel investment, and continued underestimation by regulators, including the Bank of England, of the risks of both stranded fossil fuel assets as climate policies take effect and the overall risks to the financial system from climate change and ecosystem failure.

Attendees outlined a range of practical, near-term interventions, some of which could be suited to legislation and others, to policy or regulatory reform. Among ideas discussed were mandatory emissions data reporting for businesses, strengthening net zero language and objectives for the finance sector within the UK’s industrial strategy, and adjusting capital risk weightings for fossil fuel investments - the requirement for lenders to hold sufficient funding reserves to accurately reflect their climate-related risks.

There was also support for ensuring that investment bodies like the National Wealth Fund are statutorily aligned with our climate and nature goals. Participants also highlighted the forthcoming Pensions Schemes Bill as a potential conduit to clarify fiduciary duties (which exist to ensure that those who manage other people’s money consider the long-term risks to, and consequences of investment decisions), by requiring long-term climate risks and impacts to be considered, as an essential step to scale up nature-positive, low-carbon investment.

The session provided P4P and others, a valuable opportunity to identify specific policy obstacles and solutions in the context of a new Government, a stepping stone to deepen collaboration between Peers and new economy experts, and to help lay the groundwork for future work that could help tackle structural barriers through parliamentary levers.