Driving the Green Revolution: Insights on the UK Government’s Green Finance Strategy and the Impact of ESG Legislation on UK Businesses

Lucion Group

15th December, 2023

In March 2023, the UK Government published their Mobilising Green Investment: 2023 Green Finance Strategy introducing new proposed investment schemes and new legislation in light of the twin threats of climate change and biodiversity decline.

Three years ago, in 2021, our company Delta-Simons Ltd, convened an ‘Environment Social Governance (ESG) Working Group, comprised of senior leaders from a range of divisions, and experience across multiple sectors both nationally and internationally.

Most recently our Working Group members have come together to provide insight on the UK’s Green Finance Strategy, the upcoming UK Green Taxonomy legislation from their respective fields, and discuss how new ESG legislation impacts on UK businesses.

These insights are intended to inform both clients and our wider business of innovations and developments in ESG and Sustainability. As a key player in ESG and Sustainability service delivery, the ESG Working Group recognises that action is vital to being part of the business response to climate change. Through sharing their discussions, the ESG Working Group hopes to inform and facilitate action both within our own organisation and that of our clients and supplier network.

UK Government's Green Finance Strategy. What’s it all about?

The UK Government's Green Finance Strategy is a crucial tool to support the transition to support the UK Government’s environmental and sustainable objectives. Emphasising the critical role of finance in achieving environmental and economic objectives, finance is driving the transition to a green economy and achieving environmental goals.

The strategy is presented as a comprehensive five-objective plan to support this transition and foster economic growth while addressing climate change and environmental challenges.

The Green Finance Strategy’s Five Objectives

UK financial services growth and competitiveness – the UK will do more to support its financial services sector. From venture capital supporting innovative climate tech solutions.
Investment in the green economy – Private investment will be critical to delivering net zero, building climate resilience and supporting nature’s recovery.
Financial stability – The Bank of England projected £100 billion in additional losses for UK banks out to 2050, and 50-70% higher losses for UK insurers in their highest climate risk scenario. An effective green finance framework will ensure the finance sector has the information it needs to manage risks from climate change and nature loss.
Incorporation of nature and adaptation – There is increasing recognition of the Government’s critical role in supporting private investment in climate resilience. The Green Strategy will explicitly incorporate both nature and climate adaptation into the government’s green finance policy framework.
Alignment of global financial flows with climate and nature objectives – The UK is strategically placed to collaborate with international partners to support the alignment of global financial frameworks and stimulate investment towards emerging and developing markets where capital needs are highest.

The UK has set out world-leading climate and nature targets, to meet each of these comments. But to meet these objectives, heavy investment is required.

The Cost of a Greener Future

Addressing these challenges to provide economic opportunity for early movers (within both the public and private sectors) – between 2023 and 2050, an estimated $150 trillion investment in the energy transition will be required for the world to align with the 1.5-degree pathway (quadruple the current annual investment).

Additionally, $275 – 400 billion will be required by 2030 for increased protection and restoration of nature.

Illustrated in the Green Finance Strategy, private finance will be critical, and the UK will need to ensure the alignment of financial flows, working with international partners, to capture the long-term goals of the Paris Agreement, and the outlined targets Kunming-Montreal Global Biodiversity Framework.

New legislation coming out of this

The UK will deliver a UK Green Taxonomy. A tool to provide investors with definitions of which economic activities should be labelled as green. After the taxonomy is finalised, they expect companies to report voluntarily against it for a period of at least two years, after which they will explore mandatory disclosures.
Alongside the strategy, the Government have published a consultation on regulation. ESG rating providers seek views on how regulation could help ensure better outcomes for these products. They will continue to act as observers to the industry-led working group that is developing an ESG Data and Ratings Code Of Conduct.
There will be a relaunch of the Green Finance Education Charter, which will expand to encompass more professional bodies.

Powering up Britain

The UK is expected to provide up to £20 billion in funding for early deployment of Carbon Capture Usage and Storage.
The UK announces a suite of developments aimed at increasing the deployment of low-carbon hydrocarbon in the UK.
Great British Nuclear launched with responsibilities for driving the delivery of new nuclear projects.
Plans for the Great British Insulation Scheme will be announced.
Up to £160 million investment into Floating Offshore Wind Manufacturing Scheme, aimed to kick start investment in port infrastructure projects.

ESG Impact on UK Business

Environmental, Social, and Governance (ESG) is taking on an increasing significance with the growing alertness and demand for action amongst consumers; highlighting the responsibility, commitment and action needed to accomplish positive climate action and build a sustainable, resilient future. For the real estate sector, the ESG agenda is being driven by investors and tenants in tandem with the continual development of regional and global ESG standards and frameworks.

It is widely accepted that real estate assets with better ESG credentials command more value in the marketplace. In research conducted by Knight Frank, London offices with a BREEAM “outstanding rating” had a 12.3% stepped-in increase. On the other side of this performance, a Deepki survey found that 66% of real estate investors had seen a decrease in the capital and rental value of their portfolios based on poor sustainability performance.

Following the continued development and growth of our Environmental, Social, and Governance (ESG) services lines during the past few years, we were pleased to launch our unique ESG benchmarking assessment, which was shortlisted for the Second Annual Global Sustainability Consulting Awards by Environment Analyst.

Our innovative ESG Benchmark Assessment provides a baseline of current performance for an asset and its future management. Many key investor clients have embedded “Due Diligence” for ESG into their corporate ESG Strategy, and this product has been welcomed by Clients as a way to meaningfully deliver on that commitment.

Investors are making business decisions based on ESG factors. Understanding the current benchmark assessment at the point of acquisition gives investors a clear understanding of the risks and opportunities associated with their investment.

Driving the ESG Agenda for a Greener Future

As our ESG Working Group continues to develop, we are keen to continue sharing knowledge amongst our peers and develop our ESG service lines for our Clients, aligning our product and ESG scoring to the ESG data and Ratings Code of Conduct.

ESG has become an increasingly important area of focus for businesses, as investors, clients, employees, and consumers demand transparent disclosure of ESG performance metrics at all levels of the value chain. Although ESG is not a new concept, it is rapidly developing.

As a national provider with a regional presence, we work with clients from multiple sectors including; industrial, commercial and residential developers, retailers, industrial manufacturers, fund managers, institutional investors, hi-tech companies, the public sector and charitable organisations. We are invested in developing our knowledge of the rapidly changing ESG landscape, ensuring our Clients are kept ahead of legislation.

If you are looking to partner with a proactive supplier of innovative ESG products and services, get in touch with our team by emailing info@luciongroup.com.