2021: the UK’s year to shine as a global climate leader

‘Investors are ready to follow the call, but achieving net zero cannot be the responsibility of the market alone’
James Alexander, Chief executive, UKSIF
By James Alexander, Chief executive, UKSIF 

As Joe Biden begins to shape his presidential transition in the United States, it is clear action on climate change is a campaign priority that will drive forward his new administration. A net-zero commitment from America would bring 63 per cent of the world’s emissions under such a pledge, following bold announcements from the European Union, Japan, South Korea and, importantly, China, that have all joined the UK’s pledge this year.

Such commitments signal increasing momentum towards a sustainable future. The UK, as host of United Nations COP26 climate change conference and president of the G7 next year, must demonstrate bold leadership, particularly in one of the UK’s most important industries: financial services.

In a policy victory for the UK Sustainable Investment and Finance Association (UKSIF), chancellor Rishi Sunak has announced world-leading UK regulations requiring climate risk reporting across the economy. Investors will soon have access to a large volume of data on the impacts different climate change scenarios could have on their investments. However, more work is needed and the UK must remain closely aligned with other major regulatory developments, particularly from the EU.

How government can support green finance

Understanding risks alone will not be sufficient to prevent catastrophic climate change. For this we need focused and extensive sector-by-sector decarbonisation plans and to understand the government’s climate priorities and direction of travel. To this end, the government’s plan for a Green Industrial Revolution is a great step forward.

To help ensure finance flows into areas of the economy that will contribute most to the UK’s net-zero plans, the government needs to continue sending strong market signals and back these up with new funding, legislation and, if necessary, regulation developed in partnership with the finance industry. Investors are ready to follow the call of business secretary Alok Sharma to align with the Paris Agreement and finance the transition, but achieving net zero cannot be the responsibility of the market alone.

With growing hopes for a viable coronavirus vaccine, 2021 should mark the year we focus on building back better. Our aim must be to restore our economy and our communities in such a way that actively drives us towards the low-carbon future we need to see and to which the government and sustainable finance community have committed. Following our departure from the EU, the UK should create a national green development bank with a net-zero mandate to support the COVID-19 recovery and drive the UK’s green infrastructure revolution.

Forging a bold vision for 2021

The COVID recovery, much like the transition to a net-zero economy, must place people at its heart. These efforts must prioritise the development of the future we want, simultaneously maximising the benefits of this transition for jobs, livelihoods and the economy.

With the eyes of the world on the UK in 2021, the government has a unique opportunity to shape the future of sustainable finance across the globe, achieving our shared ambition for the UK to become the global leader in green finance. Setting a bold direction of travel, developing a flexible, innovation-friendly and internationally aligned regulatory environment, engaging closely with the industry and ensuring action follows plans, will drive this ambition and ensure capital flows to the industries most essential for a low-carbon future. 

UKSIF was founded to bring together institutions across the finance industry to build a fair, inclusive and sustainable finance system that works for the benefit of society and the environment. Next year, as we celebrate our 30th anniversary with a growing membership, we are publishing a bold future vision placing sustainable finance and investment at the heart of the UK’s efforts to lead the world in a just transition to a clean economy. The transition task is substantial, but we have the imperative to succeed and our members are ready for the challenge.