As the UK's financial institutions put money into clean energy projects at a faster rate than anywhere else in the world economy in 2023, London's finance hub is upping the pressure on governments to deepen reforms necessary to meet the UN-driven net-zero goal by 2050.
A study, published on Tuesday by the City of London Corporation and Climate Policy Initiative, found UK financial institutions had tripled their investment in climate-related projects in one year, to $2.3 billon, in 2023.
The City of London's leadership views the market to finance the carbon transition as one of the biggest opportunities open to investors. Chris Hayward, policy chairman at the City of London Corporation, told The National the UK general election on July 4 was an opportunity to bring "clarity, consistency and continuity" to the policies to deliver net zero at home and internationally.
"One of the biggest challenges with the private sector is to give the investors the confidence to invest [because] they need to know that governments are absolutely committed," he said on the sidelines of a major summit to launch the report in London on Tuesday.
"I think that we need politicians around the world, frankly, that are committed to the consensus that the Paris agreements are still of fundamental importance."
One of the pillars of the Climate Accords sealed in Paris in 2015 was the need for the rich world to underwrite the transition to climate-friendly policies by developing nations to the tune of $100 billion annually.
"What we've got to do is start to see the flow of funds from the Global North to the Global South because that is where the real challenge of climate action is," he said. "We know there is this $100 billion bill and public sector finances cannot go anywhere near meeting that, so we have to have the private sector absolutely committed and on board.
"We will be looking to work with government and regulators going forward to ensure, from a net-zero perspective, we are the go-to place for climate finance."
Almost all the financial services firms in the London study have formal climate commitments in place and the focus is now shifting from commitment to implementation.
'Significant gaps'
The report revealed the rate of increase of investments by 126 UK financial firms was the fastest across the five global financial centres in the study, which also took in the US, France, Germany and Japan.
Together, an average increase of 59 per cent in investment in clean energy projects was recorded in 2023, year-on-year.
The report's findings also revealed that by the end of last year, half of the UK's financial institutions tracked had set targets that covered more than 70 per cent of their invested assets.
“We should celebrate the progress financial services institutions made across major global financial centres on the road to net zero," Mr Hayward said. "Organisations continue to see the opportunities a net-zero economy can offer, across a number of areas of sustainable finance including transition and nature finance.
“It is fantastic to see that UK financial firms continue to lead the way on the implementation of climate commitments."
In comparison, half of institutions tracked in France had set targets covering 60 per cent of their portfolios, while half the institutions in US and Japan had targets with 50 per cent portfolio coverage.
“This latest analysis based on the Climate Policy Initiative's Net Zero Finance Tracker highlights welcome progress by financial institutions," said Dharshan Wignarajah, UK director of the Climate Policy Initiative.
"This is encouraging and reflects how good policy and leadership, like those exemplified by the United Kingdom, can produce real impact on the ground.
“But the research also reveals that significant gaps remain, especially considering many financial institutions in the UK and elsewhere remain outside the leading financial alliances for net zero and have not made any commitments.”
The report's findings were discussed at the third annual Net Zero Delivery Summit on Tuesday, which brings together global financial and corporate leaders with sustainability experts to evaluate the progress made at previous Cops and how to turn words into action ahead of Cop29 in Azerbaijan.
