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The UK’s green finance industry is making significant headway, with 92% of financial service firms having either already launched green finance products or planning to do so within the next year, according to a new report launched today by UK law firm TLT.
The report, Safety in numbers: levelling the playing field for green finance, looks at the state of green finance and draws on survey responses from senior decision makers across the UK financial services sector, including lenders, asset managers and PE and VC firms.
The data reveals that around two fifths (39%) of financial services firms have already launched green finance products or offerings, with a further 53% planning to do so in the next 12 months, and the final 8% in the coming 24 months.
Even though a majority of financial services firms have not yet launched green offerings, many have already begun sowing seeds in the green finance market, with survey findings showing respondents had prioritised setting a strategy (61%), data gathering (51%) and measuring performance (42%).
Firms are also focusing on internal leadership to support their efforts, with 91% having hired, or planning to hire, a dedicated and experienced C-level or non-executive expert in green finance.
Financial services firms are becoming increasingly cognisant of the role that green finance will play in the industry moving forward, with more than half (55%) of respondents saying green finance is “critical” or “very important” to their business.
While climate change is high on the government’s agenda, firms feel the greatest demand for green finance is in fact coming from investors – indicating that market sentiment is ahead of the curb on the issue. 87% of firms state that demand for green finance is “strong” or “moderate” from investors, a figure that falls to 81% for customers and shareholders respectively, and 80% for government.
Despite a clear impetus coming from the industry, in the lead up to COP26 only 11% of senior leaders were “very optimistic” about the impact of recent government announcements on green finance, indicating that uncertainties continue to linger and more support for the sector is needed.
Respondents report that the biggest barrier to adopting green finance is cost, with 36% calling it a “critical” or “significant” barrier. This is followed by macroeconomic concerns (36%), a lack of relevant expertise on the board (34%) and challenges with measurability (32%).
These challenges, however, are not insurmountable and the data identifies the changes needed in order to drive the green finance market forward. The top requests are tax incentives for companies and investors (61%) and subsidies or grant schemes for projects (52%), both of which would help tackle costs. Following this is green securitisation (46%), expedited regulatory approval for green products (46%) and preferential capital treatment (41%).
“Many firms have already made significant progress in establishing green finance strategies, collecting data and measuring performance, as well as turning their attention to the development of green financial products, which we expect to see a lot more of in 2022.
“However, there is still a long way to go. The demands from financial services firms are clear – they want bold action from regulators and policymakers to support the transition to a financial services sector where green finance becomes the norm – it requires public and private sector collaboration.
“Green finance is an opportunity for the entire industry to come together, with government and regulators, to develop the future landscape for the financial services sector. Key to unlocking the opportunity is developing a common understanding of what green finance is and isn’t.
“Developing a common framework that sets the bar for green finance is key to unlocking the full potential of this market, and to positioning the UK as a leader of the green finance revolution.”
09 December 2021
Managing Associate London