Uncertainty over sustainability policies and regulation ‘limiting UK investment’

The lack of certainty over sustainability policy and regulation is limiting the financial sector’s investment in the UK, research suggests.

The UK Sustainable Investment and Finance Association (UKSIF) surveyed 100 financial services organisations representing approximately £1 trillion in annual turnover on barriers to green investment in the UK.

The organisation found that more than two thirds of business-decision makers (69%) agreed that uncertainty over policy and regulation is limiting their investment in Britain.

The research also found that 95% of large UK finance firms would increase their investment in sustainable projects in the UK if favourable green policies were implemented.

Meanwhile, nearly eight in ten (77%) said that greater harmonisation of financial sustainability standards globally would have a positive impact on companies investing.

Having been considered a trail-blazer in climate action and ranking number one on the Global Green Finance Index for years, many consider the UK’s world-leading position as under threat after a recent watering down of net zero policies.

Government plans for introducing measures requiring companies to publish transition plans as well as the UK’s green taxonomy have been beset by delays.

Ministers say the UK sustainability disclosure standards, based off the International Sustainability Standards Board (ISSB) standards, will be published by July but they will only form the basis for future legislation or regulation on sustainability reporting.

While 83% of those surveyed have expressed that the UK is still their top market for sustainable finance activity, 65% said they already have or plan to move investments out of the UK to a market that is more supportive of their sustainability goals.

In light of the results, UKSIF is calling for supportive policies and regulation in three key areas to strengthen the UK’s sustainable finance sector, backed by Aldersgate Group, ShareAction, Bankers for Net Zero, Impact Investing Institute, Make My Money Matter and B Lab UK.

They includes delivering a world-leading sustainability disclosure regime by adopting ISSB standards, introducing mandatory corporate transition plans and publishing its green taxonomy.

The UKSIF is also calling for ministers to power investors by clarifying the fiduciary duty of pension schemes and embed biodiversity into the regulatory framework.

James Alexander, chief executive of UKSIF said: “The UK is facing a crucial inflection point that could see it either close the remaining gaps and benefit from the great strides we have taken in our global leadership on sustainable finance to date; or lose its hard-won position as a leader.

“The recent flipflopping on wider sustainability policies, continued absence of detailed policy frameworks for various sectors, alongside secondary factors such as a lack of clarity from policymakers in creating a clear and stable financial services regulatory framework, is helping drive away much needed private capital into the UK that can help progress the country towards net-zero.”

A Government spokesperson said: “London has been ranked first in the world for green finance for the sixth consecutive time, and our Green Finance Strategy sets out an ambitious programme to secure the funds needed to achieve our energy security, net zero and environmental targets.”