Britain fails to sufficiently shift financers away from carbon-intensive portfolios

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Climate action programmes launched in Britain over the past years have failed to significantly shift the focus of financing institutions away from carbon-intensive projects towards measures that mitigate climate change, according to the findings of a study released by Climate Policy Initiative.

The study, Net Zero Finance Tracker, has revealed that only a few companies amongst the over 800 private institutions that reported some level of climate target setting in 2020 have actually put the commitments into action. The companies include banks, asset managers, and corporates. Climate targets promised by the companies include qualitative commitments, quantitative targets, as well as membership in coalitions or initiatives that may influence future capital alignment.

To date, nearly seven hundred of the companies are beginning to integrate these targets into practice by changing policies, governance and investment approaches, evidence that although the UK private finance sector is setting climate change targets, action is slower than required to meet 2050 goals.

Dr Barbara Buchner, global managing director at Climate Policy Initiative, said: “What we have here is a gap between what financial institutions say and what they do on climate action. They’ve made net zero commitments, but most have not followed up with the policies to make the money flow.

“Right now, though, despite all these promising targets, actual financial flows and portfolios remain deeply misaligned with Paris Agreement goals.”

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Other key study findings include:

  • Green bond issuance has shown a steady increase in the UK whilst project-level finance for climate change mitigation and adaptation has decreased between 2015 and 2018.
  • There are 10 times as many institutions whose share of portfolios exposed to climate-critical sectors is misaligned with the Paris Agreement as there are aligned institutions. The institutions with misaligned portfolios are usually larger than those with aligned portfolios.
  • The number of asset managers responding to climate change has increased exponentially in recent years. In 2015, only 12 asset managers reported any response to climate change. That rose to 408 by 2020, representing over $12 trillion in assets, which is equal to approximately the entire UK investment management industry. At the same time, the number of banks in the UK reporting some level of response to climate change has increased incrementally over the last five years. In 2020, 16 UK banks reported some level of response to climate change, representing approximately $7 trillion in assets, compared to $10 trillion managed by banks in the UK overall.
  • The main challenges the UK is experiencing in meeting its decarbonisation goals include decarbonising an aging building stock, phasing out gas in both the electricity and heat networks, replacing all vehicles with electric alternatives, and restoring degraded and such as forests and peatland. Although the UK has been successful to a certain level in decarbonising its power sector, investments need to be scaled-up in renewables, replacement of fossil-fuelled generation and grid modernisation to meet 2050 goals. Aggressive policies need to be enacted to accelerate the decarbonisation of the transport, industry, and building sector and to encourage more investments in climate mitigation programmes if the UK is to meet its 2050 climate action targets, according to the study. Immediate, transparent and adequate action needs to be taken now and not delayed.
  • Annual green investments need to increase by several folds in every economic sector, existing technologies scaled up and new climate mitigation strategies introduced to reach net-zero emissions by 2050.

The tracker monitors more than 1200 private institutions in the UK that together represent over $25 trillion in assets managed or owned.