What is the UK Government’s Green Finance Strategy?

This plan is the 2023 Green Finance Strategy which takes into account feedback from the 2022 stakeholder call for evidence, to update the 2019 strategy. This provides a bold roadmap for the private and public sectors.

This article takes a look at:

• What is green finance?
• How the innovation required to achieve net-zero can be made economically viable?
• What is already being done?
• What is the role of agriculture in achieving net-zero?

Green finance and the Government’s strategy

According to the UK Government, green finance is:

‘any structured financial activity – a product or service – that has been created to ensure a better environmental outcome.’

The UK is internationally renowned for its green finance centre, so is well-placed to mobilise green finance. This strategy outlines how the financial sector can drive a global transition towards net zero. For more information on net-zero and tackling GHG emissions, follow this link. The green finance strategy also outlines five objectives that the Government hopes to achieve to become net-zero and grow the UK’s green finance sector:

• Find ways to enable our financial services sector to prosper from a transitioning global economy
• Invest in the green economy
• Set up a green finance framework
• Incorporate nature and climate adaptation into a green policy framework
• Align global financial flows with climate and nature objectives

Although the UK’s low carbon sectors received £50 bn worth of new investments in 2021 and 2022, it is estimated that £50-60 bn will need to be invested in the green economy each year to the end of this decade and throughout the next in order to reach net-zero. This cannot be done without tapping into the private sector, due to the significant requirements for transition finance. This can help provide capital for products and services to support higher emitting companies on their journey to decarbonisation.

What needs to be done?

To successfully address climate change and biodiversity loss, the UK requires large-scale public and private investment. Yet, to maximise the benefits of the green finance strategy, these two sectors and sources of funding need to work together, rather than stand alone. For instance, the UK Government believes publicly funded research and innovation can pave the way for future private sector investment where barriers and lack of incentives previously existed. Therefore, the public sector can de-risk private sector investment, as requested in the 2022 call for evidence, as well as improve confidence in investments by providing clarity to projects such as through long-term roadmaps and policy guidelines.

Getting private sector investment in research and innovation up and running, helps to scale-up projects. But it can also provide large economic benefits to those investors who get involved early on, as well as make a significant difference to the environment.

Projects that are attracting public and private sector funding

Nova Pangaea Technologies in Teesside

This project is developing a process that uses agricultural waste (wheat straw, corn kernel fibres, woody residues) to produce sustainable biofuels for the aviation industry. Funded by the Department for Transport and the British Business Bank, utilising both private and public sector funding with financial support from the European Union, Nova Pangaea are reducing reliance on fossil fuels. Therefore, through the right funding, it is on track to level up its innovation from a smaller scale to a more commercial one.

Carbon Capture, Usage and Storage (CCUS) Infrastructure Fund

On a much larger scale, the UK Government has committed to investing £20 bn to try and attract private investment in CCUS and scale-up innovation.

The CCUS Infrastructure Fund is just one example of this funding. The £1 bn fund aims to reduce the costs of developing CCUS infrastructure for private investors, including transport and storage networks, and industrial carbon capture projects. CCUS involve capturing and removing CO₂ used in power or industrial sources and from the atmosphere. They can either permanently lock up CO₂ within the earth or use it as a feedstock.

With exports from green sectors growing rapidly, especially for low carbon and renewable energy industries, greater investment in CCUS provides the opportunity to expand this sector, with Gross Value Added exports potentially reaching up to £4.3bn by 2050.

What could the future hold?

By outlining a plan for future projects and success, and de-risking private capital investments, the Government hopes to attract further private sector funding to accelerate the innovation required to meet net-zero targets. By ensuring the public and private sector works together, this can not only provide environmental benefits, but also help grow the UK economy through bringing the green and technology sectors together to make innovation economically viable. It will be interesting to see how green finance develops in the coming years in order to scale up innovation towards decarbonisation.

Where do farmers fit in?

While the Green Finance Strategy may seem far removed from the average farm business, it’s worth remembering the key role agriculture has to play in decarbonisation to meet the UK’s net-zero targets. Farm soils, hedgerows and trees all benefit the environment through the ability to capture and remove carbon from the atmosphere.

While carbon markets provide some incentive to sequester carbon in soils, some banks are also offering green finance loans to:

• Help reduce your carbon footprint, such as through capturing carbon and improving soil health
• Become more energy-efficient by using more renewable sources, without compromising on productivity

It’s important to start thinking about how your farm can reduce its carbon emissions, as in the future you may be asked to provide evidence of your own emissions and the activities being undertaken to reduce these. Furthermore, by assessing your own carbon levels you are taking the first step towards generating additional income from sequestering carbon should you wish to sell credits generated from this. If you are interested in getting involved in carbon markets or obtaining green finance, please seek expert and legal advice.