As the UK will host the 26th United Nations Conference of the Parties on Climate Change (COP26), this is an unprecedented opportunity to shape the green finance agenda and support ‘Rebuild for better recovery. British Chancellor of the Exchequer Rishi Sunak (Rishi Sunak) pledged to make the UK a world leader in green finance. The recent green decision to authorize the Bank of England is an important step towards achieving this ambitious goal.
In fact, this reform came at the right time. If the Bank of England does not take a more proactive approach to resetting capital flows to net zero (enabled by its new mandate), existing policy measures will not be sufficient to align finance and climate goals within the time frame required for transformational actions. They also do nothing to increase the income, employment or economic prospects of local communities in order to achieve the government’s upgrade agenda and broader plans for better reconstruction.
Prior to the COP26 summit, in accordance with the Bank of England’s new green mission, this report has formulated a bolder policy roadmap to reshape British finance and use its power to truly rebuild better by supporting the recovery of green and social justice.
- The majority of policy attention is focused on protecting the financial system from the risks posed by climate change, and little attention is paid to protecting the climate from the risks posed by finance.
- The financial system is currently inconsistent with the goal of green transformation. Relying on a market-led approach alone may not be able to manage major risks in the financial system, or it may not be able to fully “green” capital flow in the time frame remaining for the transformation.
- Before the pandemic, only 2% to 5% of bank loans went to small and medium-sized enterprises (SMEs)-60% of private sector employment opportunities in the UK came from SMEs-the current financial system is not set up to provide support for employment, business And the important patient strategic funds needed by the local community as part of the green recovery.
- With the new green mandate, the Bank of England has no reason not to take action to stimulate green financial flows and regulate unsustainable private financial flows. But it cannot act alone; it will need to work closely with public agencies and elected officials.
Main policy recommendations
Unleash green investment
The Bank of England needs to coordinate with the Ministry of Finance to actively support green reconstruction and restore a better recovery through the use of its available policy tools. This should include supporting green investments in the real economy by adjusting loan plans to provide cheaper credit to commercial banks, provided that banks expand loans to sustainable projects, especially small and medium-sized enterprises. The Bank of England should also provide additional funding to the new British investment bank by redirecting the loan repayment funds it received from financing facilities launched in response to the pandemic.
Regulate private finance
British financial regulators need to ensure that private financing supports rather than hinder the government’s climate and upgrade goals. The Bank of England and the Ministry of Finance should require all UK financial institutions to develop credible transition plans that comply with the Paris Agreement. They should take measures to require private financial institutions to fully consider climate-related financial risks, and promote the supervision of the financial system consistent with Paris at the international level.
Reform system ecology
The British government needs to establish the necessary institutional framework to achieve a green recovery and a just transition to net zero net worth. This should include the establishment of a coordinated working group composed of different public institutions to manage climate finance, as well as the development of indicators and real-world targets to measure the progress of the British financial sector’s adjustment to Paris.
Table 1. Main policy recommendations