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Driving ambition in green finance

The transition to a clean, low carbon and resilient economy is a multi-billion pound investment opportunity and we want UK businesses to take full advantage of it. The UK has long been regarded as a leading global financial centre, with a world leading stock market featuring nearly 80 green bonds listed on the London Stock Exchange. We are determined to cement the UK’s position as a global hub for investment in clean growth.

Since setting up the Green Finance Taskforce, the government has been taking concrete steps to strengthen our green finance capability. The government and City of London will co-fund a new Green Finance Institute that will act as the focal point for future UK green finance activity. The government has also announced changes to pensions regulations so that trustees will have to set out how they consider the financial risks and opportunities arising from climate change.

And the government has now committed to build on the Green Finance Taskforce report by publishing the UK’s first ever Green Finance Strategy in Spring 2019. This will set out the steps we are taking to attract the investment we need into our clean economy and to cement the UK’s position as a global leader, including:

  • supporting developing countries through their low carbon transition
  • integrating green principles across the financial services sector

Raising awareness & increasing engagement in Green Finance

As part of Green GB Week there will be a dedicated Green Finance events programme with activities spread across the week. The aim of these events is to raise awareness of the green finance agenda and the role of financial services in unlocking investment into environmentally and socially-beneficial technologies and infrastructure in the UK and internationally.

These events will reach a broad audience including consumers and young people, as well as organisations across the financial sector including regulators, insurers, pension funds, asset managers, legal firms and retail banks. The official Green Finance Day agenda (today Wednesday 17 October) includes:

  • a Market Opening at the London Stock Exchange with a speech from John Glen, Economic Secretary to the Treasury
  • a full day programme at the Tate Modern coordinated by HSBC, including sessions on women in sustainable finance, greening your pension fund, integrating climate risk into investment decisions and building capacity in emerging markets
  • a Climate Resilience Summit led by Willis Towers Watson

On Friday 19 October, during Green GB Week, the Financial Conduct Authority will lead a half day workshop on supporting green finance innovation, and BNP Paribas will host a careers event to highlight different finance career opportunities to students interested in sustainability.

Catalysing investment in Clean Tech

The government will be investing up to £20 million alongside at least £20 million from private investors in a new venture capital fund called the Clean Growth Fund. It is only through innovation, nurturing better products, processes and systems that we will see the cost of clean technologies come down. This new fund will aim to catalyse the market and leverage private sector funding to ensure these innovative clean technologies can bridge the valley of death and achieve impact at scale. On 17 October, we published a Request for Proposals for fund managers.

Boosting investment in green infrastructure

BEIS is working with the Infrastructure and Projects Authority to explore how best government could produce meaningful data setting out which infrastructure projects can be considered ‘green’. This would increase transparency, illustrating the government’s commitment to leading by example in tackling climate change, and showcasing the opportunities available to investors looking to place funds in green projects.

The government will host a national conference followed by at least 5 regional workshops – bringing together local authorities, cities, investors and civil society to help build partnerships to start delivering the pipeline of projects currently being developed at local level. This will help connect investors and the wider finance sector to local projects, and increase the role that regions and local players can have to boost the development of green infrastructure. The government will be working in partnership with UK100, Leeds City Council and more to set up this ambitious programme of work, which will be delivered throughout 2019.

Supporting consistency & comparability in the sector

The British Standards Institution (BSI) will be developing two new UK-led, internationally relevant, PAS (Publicly Available Specification) documents in Sustainable Finance to increase confidence in, and understanding of, sustainable investments and activities. A new Strategic Advisory Group chaired by Peter Young, Trustee and Chair of the Green Purposes Company, has been established to provide strategic direction for BSI’s wider Sustainable Finance Standardisation Programme. This work was commissioned by ministers in the Clean Growth Strategy and is being co-funded with the City of London’s Green Finance Initiative.

BSI will also be leading a new International Organisation for Standardisation (ISO) Technical Committee to develop international standards on Sustainable Finance, informed by the UK-led PAS work. This demonstrates the prominence of UK thought leadership globally, and will contribute to meeting the objective we set out in the Industrial Strategy to become the standard-setters in green finance.

Global leadership & building capacity in emerging market economies

UK leadership on green finance is further demonstrated by the new UK PACT (Partnering for Accelerated Climate Transitions), a £60 million BEIS-run technical assistance programme to share UK skills with partners around the world. The first UK PACT projects strengthen collaboration between the UK and China on green finance, with a focus on harmonised standards for green bonds, analysis of green asset performance, advice on TCFD implementation and supporting the set-up of a new UK-China Green Finance Centre.

Employers brace for flood of ‘final salary’ pension transfers

British businesses are reporting a surge in demand from current and former staff who want to swap their “final salary” pensions for cash.

Half of the 182 employers surveyed by the Association of Consulting Actuaries, a trade body, said they had received transfer request from at least 5pc of scheme members.

Growing numbers of savers are seeking to move their pensions final salary schemes to “defined contribution” plans because of the extra flexibility afforded and superior tax treatment on death.

It is thought more than £50bn has been taken out of final salary schemes over the past two years, with the average transfer exceeding £250,000.

This suggests that the option is being used by better-off employees or past employees.

But record-low interest rates have also pushed up the “transfer values” offered by pension schemes to those who give up their entitlements and take a cash transfer instead. Final salary type schemes pay a guaranteed, inflation-linked income for life. To provide equivalent benefits via an annuity has become increasingly costly, a fact reflected in higher transfer values.

In some cases, for example, people are being offered around £500,000 to give up a pension paying £12,500 a year.

These schemes are all but extinct in the private sector because they are incredibly expense for sponsoring employers to support. They are required by law to meet their income promises no matter prevailing market conditions.

Instead, the type of pension generally offered now is the “defined contribution” scheme were the worker builds up a pot over the course of their career – rather than a promise of any income.

Difficulties in getting a transfer

The majority (61pc) of final salary members who want to transfer are struggling to find a financial adviser to help them do so, the ACA’s research found.

Under Government rules, savers must see a financial adviser if transferring a pension worth £30,000 or more. This equates to a pension expected to pay just £1,000 a year.

Savers have a right to transfer as long as they can prove they’ve taken advice, whether or not they have been recommend to go ahead with the move.

Yet many advisers are wary of taking on pension transfer business as they fear savers don’t fully understand the risks involved and may make claims for compensation years into the future. In the Nineties, billions of pounds of compensation was paid out to people who were wrongly advised to give up company plans for personal pensions.

The ACA said the dearth of willing advisers explained why only one in four requests actually resulted in a transfer.

He added savers were being frustrated, and schemes were facing rising costs, because of a lack of standards for dealing with inquiries and transfers.

He urged the City watchdog, the Financial Conduct Authority, to “act swiftly to help all concerned”.