Net zero: Embracing the growth opportunity of the 21 century

News of the creation of a Department for Energy Security and Net Zero closely follows the publication of the anticipated Skidmore Review. We explore what these developments could mean for the UK’s position as a sustainable finance centre, as the role of finance in net zero transition gathers global momentum.

The race to lead on clean energy is on, and Europe is facing increased competition from the US with regards to green subsidies (£). However, the recommendations made in the Skidmore Review set the UK up on the right path to remain competitive, and to deliver on its net zero commitments. And as the holder of much needed capital to finance the transition to net zero, the financial services sector plays a pivotal role.

In January, former Energy Minister Chris Skidmore published his Independent Review of Net Zero, setting out the “historic opportunity” offered  by efforts to reach global climate goals. The Review was commissioned in September 2022 to ask how the UK could better meet its net zero commitments in a more affordable, efficient, and pro-enterprise way.  

Since the Review was published, the creation of a new Department for Energy Security and Net Zero has been announced. This is a definite step in the right direction in ensuring the journey to net zero forms an integral part of HMG’s long term strategy and in fostering cross-departmental collaboration on its delivery.

“The growth opportunity of the 21^st century”

Citing an analysis by McKinsey, the report stated that the supply of goods and services to enable the global net zero transition could be worth £1tn to UK businesses by 2030. 

While the private sector is critical to the net zero transition (through its investment and innovation), the report makes clear that tackling the biggest challenges will require government and industry to work in partnership, with a long-term vision. The common message received from sectors consulted was the need for “clarity, certainty, consistency and continuity” from the government on net zero policies. 

The review considered actions taken by other countries in response to net zero opportunities. It found that “bold and ambitious” interventions were being made globally. Drawing on these, it recommends that the UK provides incentives for investment, job creation and regional regeneration. The UK is a leader and an innovator in sustainable finance, and the mainstreaming of this market provides opportunities to expand current economic activity.

The depth and breadth of the report has rightly received plaudits from industry, academia and civil society alike. Nick Molho, Executive Director of the Aldersgate Group – a multi-stakeholder alliance for a sustainable economy – said that the Review is right to emphasise the net zero transition as a major opportunity, “a rapid shift towards net zero offers much needed investment, competitiveness and job creation opportunities for UK businesses and investors”. While Dr Rhian-Mari Thomas from the Green Finance Institute reflected on the need for a “smarter approach to risk-sharing with the private sector… to accelerate the deployment of private capital into net zero”. 

So what does this mean for sustainable finance?

The report includes 129 recommendations, with a range of short-term and long-term actions. These should help to ensure sustainability sits at the very heart of HMG thinking moving forward. And the annual Net Zero Delivery Summit, delivered by the City of London Corporation in partnership with the Egyptian COP Presidency will be playing its part too, focusing discussion on practical implementation, best practice and problem solving to help firms and economies worldwide to advance their sustainability goals.

We look at four key recommendations that would help the UK scale up sustainable finance in its efforts to meet its net zero commitments and enhance its global lead on the green transition:

1. “Conduct a strategic review of the UK's international climate leadership and ensure the 2030 Strategic Framework on Climate and Nature provides practical direction for the UK's international climate and nature leadership”.  The UK’s COP Presidency delivered the Glasgow Financial Alliance for Net Zero, and the International Sustainability Standard Board, both of which have strong UK roots and global reach. The City of London Corporation supports HMG reviewing how these assets, among others, can be put to best use to maintain and enhance UK leadership on climate. It is also worth noting that the City of London Corporation in partnership with HM Treasury have developed the State of the Sector report – an annual review on the international attractiveness of the UK financial services sector, including a chapter on the UK’s role in greening the world’s financial system. The latter provides an evidence-based assessment of where the UK is world leading on its sustainable finance offer, what steps have been taken to improve its position, and considers areas for further reform.
2. “Through its update to the Green Finance Strategy, HM Government (HMG) should set out a clear, robust and ambitious approach to disclosure, standard setting, and scaling up green finance”.  It is of utmost importance that we build an effective international framework for sustainability disclosure rules. This will maximise the interoperability of local standards, avoid fragmentation and regulatory arbitrage, promote greater transparency, consistency and comparability of disclosures, and reduce reporting costs and operational burdens. The implementation of future ISSB standards in UK law, requiring corporates to report against them, should be a priority. 
3. “Fully back at least one Trailblazer Net Zero City, Local Authority and Community, with the aim for these places to reach net zero by 2030”. The City of London Corporation supports the objective of supporting more place-based, locally-led action on net zero and empowering places to deliver and raise ambition, according to their specific needs. Cities are major contributors to greenhouse gas emissions but supporting the scaling of place-based impact investing in the UK can also help places develop solutions for environmental challenges at the local level. Government can facilitate better access to green finance for local authorities, by providing the capability support they need to engage with financial institutions with regards to information, capital, capacity and skills.  The City of London Corporation has launched its own climate action strategy and has led on initiatives like Finance for Sustainable Growth (F4SG), to ensure that the entire UK benefits from London-based expertise and sources of capital as it seeks to foster sustainable economic growth across regions and works towards net zero carbon emissions by 2050.  
4. “In line with wider thinking on voluntary carbon and ecosystem markets, ensure a pipeline of investable nature-based solutions projects is available”. Protecting nature and biodiversity is essential to sustainable growth, and presents an economic opportunity to establish the UK as a global leader for nature finance. A pipeline of investable nature-based solutions projects will also support credible growth of the Voluntary Carbon Market (VCM) in the UK. We support the use of high-integrity voluntary credits as part of credible transition plans, and hope to see widespread endorsement of international VCM standards due for publication this year. We support the Skidmore Review’s conclusion that carbon pricing is the most cost-effective means of achieving an economy-wide net zero transition. In fact, the City of London Corporation provides secretariat support to the UK Voluntary Carbon Markets Forum and is a founding sponsor of the Integrity Council for the Voluntary Carbon Market.

The UK is one of the world’s leading international financial centres for green finance. It is where the innovative new products, services, companies and partnerships that are driving the globalisation of sustainable finance can seed, take root and scale internationally. 

Join us on 24 May at the Net Zero Delivery Summit. This milestone event in the sustainable finance calendar will maintain momentum between COP27 and COP28 and explore themes including mobilising capital into emerging markets to support transition; mitigation and adaptation, and the scaling of high integrity voluntary carbon markets.