Green Finance Initiative

Information presented in this profile is for reference only. The Climate Action in Financial Institutions Initiative does not guarantee as to the exhaustiveness of this information and invites you to contact the Secretariat (contact@mainstreamingclimate.org) if you wish to propose any modifications.

By including this profile, the Initiative, its Supporting Institutions and the Secretariat do not endorse the activities described below nor the guidance and information provided in this profile.

Last updated: July 2018

Website: greenfinanceinitiative.org/

Contact: green@cityoflondon.gov.uk

Summary: In September 2017 the British government mandated the Green Finance Initiative, launched in 2016 by the City of London Corporation and the UK government, to put in place a Green Finance Taskforce – “an alliance of individuals and organisations tasked with providing recommendations for delivery of the public and private investment [the UK] need[s] to meet [its] carbon budgets and related environmental and resilience goals, and maximise the UK’s share of the global green finance market”[1]. In March 2018, the Taskforce published its ten key recommendations in the report Accelerating Green Finance.

What are the objectives of the initiative?

“UK Government is setting up a Green Finance Taskforce to: help deliver the investment needed to meet the UK’s Industrial Strategy and Clean Growth Strategy; further consolidate the UK’s leadership in financing international clean investment; and maximize the opportunities to be had for UK businesses in this rapidly growing area.”[2]

“The key underlying question for the Taskforce to consider will be:

  1. What is the investment that will be required in each sector?
  2. What are the barriers preventing this investment?
  3. What is the role of private financial markets in accelerating this investment?
  4. How can [UK] Government support the acceleration of this investment?
  5. How can [UK] Government enable better risk management?
  6. How can [UK] Government support the development of particular products, for example green mortgages for owner occupiers and the buy-to-let market?
  7. What is needed to strengthen the UK’s international leadership position and ensure it captures greatest share of global opportunity to finance Clean Growth?”[3]

Who launched it? Who is participating?

Launched by the UK government in September 2017, the Green Finance Taskforce is led by the former Lord Mayor of the City of London, Sir Roger Gifford. The Taskforce has 17 members (experts from the financial community) and worked with over 140 organizations during the production of its initial recommendations report.

Why has this been put into place?

“The global low carbon transition will redefine the UK economy. From the largest infrastructure projects to the fabric of our homes, the transition creates a huge opportunity for the UK to lead the world in cutting emissions while driving growth. The UK’s status as host to a world-leading financial services centre means that the UK has the chance to seize the economic opportunities that green finance offers. In September 2017, the Government asked leading finance expert and former Lord Mayor of the City of London Sir Roger Gifford to chair an independent taskforce to look at how the UK could fulfil this vision, looking at what systems and structures are needed to make it a reality.”[4]

What are the main work streams/areas of work?

The UK Government’s Terms of Reference define the working programme for the Green Finance Taskforce: “The Taskforce will cover a set of sub workstreams encompassing the full suite of financing options as set out in the table below. The Taskforce will initially be asked to refine and agree draft recommendations, and then to gather input from a wide range of industry peers in support of these objectives.

[5]

One of the work streams specifically deals with the recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD): “The GFI Working Group on Data, Disclosure and Risk is concerned with promoting the following issues and topics: 1) appropriate disclosure, particularly implementing and then building on the recommendations from the Task Force on Climate-related Financial Disclosures, 2) utilising developments in data capture (e.g. satellites and sensors) and data processing (e.g. machine learning and natural language processing) to complement and enhance disclosed information, and 3) analytical frameworks, processes, standards, and capabilities that can ensure the comparability and usability of data and related analysis (e.g. scenarios, data standards, tagging/back-tagging, and distributed ledger technologies).”[6]

What are outcomes of the Taskforce linked with the 5 Principles?

The report Accelerating Green Finance ( March 2018) makes ten key recommendations:

“Theme 1. Relaunch UK green finance activities through a new unified brand
Theme 2. Improve climate risk management with advanced data and analytics
Theme 3. Implement the recommendations of the Task Force on Climate-related Financial Disclosures
Theme 4. Drive demand and supply for green lending products
Theme 5. Boost investment into innovative clean technologies
Theme 6. Clarify investor roles and responsibilities
Theme 7. Issue a sovereign green bond
Theme 8. Build a green and resilient infrastructure pipeline
Theme 9. Foster inclusive prosperity by supporting local actors
Theme 10. Integrate resilience into the green finance agenda.

The report identifies more ambitious reforms for the Future:

  1. Provide further incentives for sterling issuers of green securities
  2. Go beyond Task Force on Climate-related Financial Disclosures with Sustainability-related Disclosures
  3. Increase allocations into illiquid asset classes to facilitate long term investments
  4. Addressing barriers to sustainable investment
  5. Consider how the prudential regime for banks and insurers might better reflect the different financial risks associated with ‘green’ and ‘brown’ assets”

“First, that the TCFD recommendations should be integrated throughout the existing UK corporate governance and reporting framework. […]
Second, that new and voluntary UK Sustainability-related Financial Disclosure (SFD) recommendations introducing additional elements not fully covered by the TCFD recommendations or beyond the scope of the TCFD process should be created. […]
Third, that there must be a comprehensive effort by the Government and relevant regulators to support successful adoption, implementation and enforcement of the TCFD recommendations and the voluntary SFD recommendations, including through public rankings, off-the-shelf tools and scenarios, and publicly available datasets.”

Have intermediate or final reports / guidance been issued?

The Taskforce published two reports in March 2018:

Calendar and milestones

Associated Supporting Institutions of the Climate Action in Financial Institutions Initiative:

  • BNP Paribas, EBRD and HSBC are members of the GFI Working Group on Data, Disclosure and Risk
  • Dr Daniel Klier, Group Head of Strategy and Global Head of Sustainable Finance, HSBC is a member of the Green Finance Taskforce

[1] greenfinanceinitiative.org/wp-content/uploads/2018/04/Report-of-the-Green-Finance-Taskforce-1.pdf

[2]assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/675361/Green_Finance_Taskforce_-_terms_of_reference.pdf

[3]assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/675361/Green_Finance_Taskforce_-_terms_of_reference.pdf

[4] assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/703816/green-finance-taskforce-accelerating-green-finance-report.pdf

[5] assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/675361/Green_Finance_Taskforce_-_terms_of_reference.pdf

[6] greenfinanceinitiative.org/wp-content/uploads/2018/04/Data-Risk-and-Disclosure-Paper.pdf

Links with the 5 Voluntary Principles for Mainstreaming Climate Action

This section aims to support discussions on the implementation of the 5 voluntary Principles for Mainstreaming Climate Action. Information provided in this section is for reference only; the Climate Action in Financial Institutions Initiative, its Supporting Institutions and the Secretariat do not endorse the activities nor the guidance and information provided in this section.

The Green Finance Taskforce recommends collecting further data to improve climate risk management and a clarification of fiduciary duties. Most recommendations of the report Accelerating Green Finance address the Government, but have also implications for financial institutions:

“Theme 2. Improve climate risk management with advanced data and analytics.

  1. Private sector, academia and the Government should establish a Centre for Climate Analytics.

[…]

Theme 6. Clarify investor roles and responsibilities

Clarification of fiduciary duties, investor competence, good fund governance on environmental, social and governance (ESG) issues and processes that take proper account of the financial risks and opportunities that they pose, are essential to enable the UK financial system to respond in a timely way to climate risk and clean growth opportunities.”

Regarding climate-related disclosure the report Accelerating Green Finance recommends to “[c]larify investor roles and responsibilities:

“Recommendation 17

Government should require that the Statement of Investment Principles include statements of the extent to which social, ethical and environmental issues (including climate change) are considered, or why the trustees have determined that such considerations are not material or relevant factors to consider. Asset owners should be required to report on how they take into account ESG issues in their Statement of Investment Principles and investment strategy. Implementation of the revised Investment Regulations and Statement of Investment Principles by pension funds (recommendations 16 and 17) should be overseen by The Pensions Regulator.”

As part of the TCFD work stream, the report Establishing the World’s best framework for climate-related and sustainability-related financial disclosures recommends to “embed the TCFD  recommendations into the UK corporate governance and reporting framework:

  • “the guidelines will make clear that the Government and regulators view accurate disclosure on material environmental risk, including climate risk, to be a legal requirement. As the TCFD recommendations are the best mode by which to disclose climate risk currently available, the guidelines will make clear that the Government and regulators view disclosure in line with the guidelines as providing evidence of good corporate governance and compliance with legal duties of company directors, investors etc. and the best means of avoiding the threat of future litigation and potential regulatory action.”
  • “The guidelines should make clear that any assumptions for calculations, estimates or projections should be disclosed by preparers. Where a third-party framework, system or methodology has been used when preparing disclosures, the type of framework, system or methodology used should be disclosed. Organisations developing frameworks, systems or methodologies used by preparers should also disclose their assumptions.”
  • “Preparers should provide forward-looking scenario-based disclosures of how their business strategies and financial planning may be affected by climate-related risks and opportunities over the short-, medium- and long-term. One of these scenarios should be a “2°C scenario” consistent with limiting the global average temperature increase to well below 2°C above the pre-industrial average. Preparers should disclose which climate scenarios and time horizons they have used, and where they have chosen to use their own climate scenarios, disclose the parameters, assumptions, considerations and analytical choices they have made.”

Beyond the integration of the TCFD recommendations, the work stream indicates voluntary SFD recommendations:

  • “include a new framework for measuring and reporting on both positive and negative impacts related to climate change, the environment and the Sustainable Development Goals (SDGs)”
  • “help preparers […] disclose basic information about [particularly physical] assets to enable bottom-up spatial analysis.”
  • “help preparers disclose their green revenues by product and/or service”
  • “help preparers disclose their aggregate committed emissions”
  • “help preparers publish adaptation plans that set out how they intend to manage physical climate-related risks”

“help banks adopt and deploy methodologies to tag new and outstanding loans with relevant sustainability-related risk, opportunity and impact information. This process of ‘tagging’ and ‘back-tagging’ will enable banks to better understand the exposure of their loan books to different risks, opportunities and impacts.”