Mobilising capital for net zero transition - key financial services sector asks

UK Finance has released its report Mobilising Capital for Net Zero Transition which outlines key asks from the banking and finance sector to the Government to mobilise capital in the UK to achieve Net Zero goals.

UK Finance is committed to supporting the net zero transition and recognises the critical role the financial services industry must play to achieve a just transition to the green economy.

In April, we welcomed the Government’s package of measures to move forward the UK’s transition. In July we started working with our members from the banking and finance industry to identify areas where a more specific set of policy measures is needed to support the Net Zero transition. In September, we noted the Prime Minister’s announcement setting a new timeline for some Net Zero commitments such as energy efficiency targets on homes and the transition to heat pumps.

While the Prime Minister has set out a vision to keep to our goals while maintaining public consent, policymakers must offer far greater detail to secure the private investment and lending needed so that we can all enjoy the benefits of a Net Zero economy and ensure the UK plays its part in mitigating climate change.

The report

Published last Friday, the report identifies recommendations that can help to drive up demand and incentivise the allocation of capital toward Net Zero objectives and includes several examples where pools of capital are underused because of gaps in the policy environment.

The proposed recommendations seek to highlight cost-effective measures for the short-, medium- and long-term, in recognition of a tightening political timetable with an upcoming general election.

Drawing on input from financial services experts, the paper offers a deeper understanding of what some of the current challenges and needs are to unlocking finance for low-emissions projects in the UK. The sector strongly supports long-term and ambitious climate policy that ultimately can only be secured through wide scale, systemic buy-in from government alongside adequate public funding.

The paper was covered by Reuters, highlighting our call for clarity on Net Zero policy to drive investment.

Our asks

The Government's commitment to Net Zero is commendable, but it requires detailed sector financing roadmaps to attract private investment. These roadmaps must specify policy frameworks, spending plans, and incentives for various sectors, ensuring long-term certainty. Fulfilling the 2023 Green Finance Strategy and implementing a globally coherent sustainable finance regulatory environment, developed from appropriate consultation with the private sector, will help generate the data that firms need to allocate capital effectively.

Blended finance and targeted tax incentives are essential to enable the UK to attract private investments for sustainable projects. To maximise their effectiveness, the government should simplify funding programmes and tweak such programmes where amendments will help improve usability. Expanding funding sources, addressing institutional design issues, and considering strategic public financing are crucial. Targeted green tax adjustments, such as Stamp Duty changes, can encourage sustainable behaviours. These actions are cost-effective measures to advance the Net Zero agenda.

Infrastructure and planning reforms must be accelerated and flexible planning procedures offering certainty are needed. Grid connection delays must be addressed to speed up electricity infrastructure development. Expanding low-emission transport infrastructure and electric vehicle charging networks is essential. Retaining the Infrastructure Supporting Factor (ISF) or providing an alternative is vital for competitive green project finance. In addition, a long-term plan for upskilling the workforce, with the government's commitment to a skilled green workforce and a dedicated career portal will be critical enablers to the green transition.

We are calling for
Cross-cutting enabler	Key ask	Action
1. Setting a clear direction of travel	1.1 Net Zero Investment Plan and sector-by-sector Net Zero investment roadmaps	Low-cost action: Re-issue relevant sector Net Zero roadmaps, working closely with industry, to maximise clarity for investors and lenders. Low-cost action: Empower an independent body to analyse financial flows on an ongoing basis. Higher-cost action: Fulfil the recommendations of UK Finance’s Net Zero Homes report.
1. Setting a clear direction of travel	1.2 Progress commitments on financial regulation and data	Low-cost action: Fulfil existing commitments in the 2023 Green Finance Strategy, including consulting and engaging meaningfully with the private sector to ensure that measures are proportionate and achieve their stated objectives. Low-cost action: Continue to support global sustainability regulatory coherence. This includes ensuring that there is the right level of expertise at forums like the ISSB and the International Platform on Sustainable Finance.
2. Blended Finance and Targeted Tax Incentives	2.1 Targeted adjustments to design of financing programmes	Low-cost action: Government and regulators should revisit design of financing programmes where issues are reported, for example simplifying complex funding programmes.
	2.2 Expand and utilise funding pools more effectively to derisk private lending and investment	Low-cost action: Improve UKIB’s risk-taking capacity by implementing targeted adjustments to its strategy, mandate or institutional design. Higher-cost action: Over the medium term, increase other sources of public financing including through CfDs, and consider increasing the UKIB loan-book, to maximise its ability to derisk lending and investment across the whole economy.
	2.3 Consider targeted green tax adjustments to better incentivise decarbonisation at all levels	Low-cost action: Consider targeted changes to taxes, including “green levies” and Stamp Duty to incentivise sustainable behaviours.
3. Infrastructure and planning	3.1 Implement urgent reforms to the planning process	Low-cost action: Deliver on recommendations to streamline planning processes for NSIPs, and consider widening these recommendations to other, non-NSIP sectors.
	3.2 Accelerate electricity infrastructure development and connection	Low-cost action: Undertake policy measures needed to scale up and accelerate grid connections, such as those set out in Ofgem’s May 2023 open letter. Higher-cost action: Fulfil the recommendations of the Electricity Networks Commissioner to enable the accelerated expansion of the electricity network, and provide adequate resource to enable this.
	3.3 Expedite development of low-emissions transport infrastructure	Higher-cost action: Deliver on commitments in the Decarbonising Transport plan, and provide long-term clarity on the process to achieve outcomes like the phase-out of diesel and petrol cars.
	3.4 Retain or provide an adequate replacement measure for the Infrastructure Supporting Factor	High-cost action: Retain or provide an adequate alternative for the Infrastructure Supporting Factor after the discontinuation of CRR2 501a.
4. Skills and building the workforce	4.1 Commit to a long-term plan for skills building	Low-cost action: Issue the planned Net Zero and Nature Workforce Action Plan, as committed for 2024 in the March 2023 Powering Up Britain publication. Set out targeted investments to rapidly drive up the UK skills-base. Low-cost action: Reform the Apprenticeships Levy to allow unutilised funds to be used by firms rather than returned to government without being allocated for specific purposes. Low-cost action: Fulfil the commitments made in Build Back Greener, and work with local bodies, employers and local communities to establish clear targets for the net zero workforce. Low-cost action: Update the National Career Service page to include and increase awareness around green skills and green career opportunities.