Recommendations & Conclusions
24 items
1
Recommendation
Thirteenth Report - Net zero and the Fu…
Although the Government has emphasised the need for a “green” recovery, we note it has not, except in limited circumstances, imposed green conditionality on the support it has provided during the coronavirus pandemic. Whilst it is clear that support schemes were required to be provided without delay the Treasury should …
Government response. The Government has always remained open to the introduction of new debt financing instruments, including green bonds. However, before doing so the Government would need to be satisfied that any new instrument would meet value-for-money criteria for the taxpayer, enjoy …
HM Treasury
2
Conclusion
Thirteenth Report - Net zero and the Fu…
The Government has made bold claims that the economic recovery will be a green recovery. In order to achieve that, the Government needs to set out in its Net Zero Strategy who, at ministerial level, will be responsible for delivering net zero, coordinating the roles of different departments, and ensuring …
Government response. The Net Zero Strategy will set out the Government’s vision for transitioning to a net zero economy by 2050. The Strategy will present the UK’s pathway to meeting carbon budgets, delivering the UK’s Nationally Determined Contribution (NDC) under the Paris …
HM Treasury
3
Recommendation
Thirteenth Report - Net zero and the Fu…
In the Net Zero Review final report, the Government should set out what mechanisms it will put in place to integrate the net zero target within departments’ spending review commitments, and how departments will be held to account should they fail to meet their targets.
Government response. Lead delivery departments are responsible for and have produced sectoral strategies, and will continue to do so. For example, BEIS published the Industrial Decarbonisation Strategy in March 2021.
HM Treasury
4
Recommendation
Thirteenth Report - Net zero and the Fu…
The Chancellor should publish the Net Zero Strategy as soon as possible and should set out, in conjunction with the Net Zero Review final report, the principles upon which the UK will fund its transition to net zero carbon emissions by 2050.
Government response. The Government has always remained open to the introduction of new debt financing instruments, including green bonds. However, before doing so the Government would need to be satisfied that any new instrument would meet value-for-money criteria for the taxpayer, enjoy …
HM Treasury
5
Recommendation
Thirteenth Report - Net zero and the Fu…
There are a number of different estimates of the cost of achieving net zero by 2050. However, the Government has not yet committed to its own cost estimates and should set these out as soon as possible. The Government should include in the Net Zero Review final report its own …
Government response. Lead delivery departments are responsible for and have produced sectoral strategies, and will continue to do so. For example, BEIS published the Industrial Decarbonisation Strategy in March 2021.
HM Treasury
6
Recommendation
Thirteenth Report - Net zero and the Fu…
The Treasury’s Net Zero Review final report should include clear sectoral pathways towards decarbonisation and should address the key policy decisions as to the future of high carbon industries. Particular attention should be given to the potential regional impact of those decisions, and the Government should set out a framework …
Government response. Lead delivery departments are responsible for and have produced sectoral strategies, and will continue to do so. For example, BEIS published the Industrial Decarbonisation Strategy in March 2021.
HM Treasury
7
Conclusion
Thirteenth Report - Net zero and the Fu…
The Government has recognised that private finance will need to play a key part in funding the transition to net zero. If it is to do so, the Government will need to provide long-term certainty in climate-related policy and must ensure that consistent policy signals are sent to investors. We …
Government response. In 2019 the UK was the first major economy to set a 2050 net-zero target. Since then, the Government has set ambitious interim targets, including most recently a 78% reduction in greenhouse gas emissions by 2035. The UK is also …
HM Treasury
8
Recommendation
Thirteenth Report - Net zero and the Fu…
We welcome the announcement in the 2021 Budget of a timetable for the issuance of the UK’s first green sovereign bond or ‘green gilt’. However, the UK is lagging behind other countries in the issuance of these green bonds. This runs the risk of holding back the development of a …
Government response. The Government has always remained open to the introduction of new debt financing instruments, including green bonds. However, before doing so the Government would need to be satisfied that any new instrument would meet value-for-money criteria for the taxpayer, enjoy …
HM Treasury
9
Conclusion
Thirteenth Report - Net zero and the Fu…
We note the new remit provided to the Monetary Policy Committee, which will allow it to rebalance its Corporate Bond Purchase Scheme to take account of the climate impact of the bonds it holds. We will continue to scrutinise this process and will examine how any changes are enacted, and …
Government response. The Monetary Policy Committee (MPC)’s primary objective of maintaining price stability is unchanged. Subject to achieving its primary objective, the MPC’s secondary objective is to support the economic policy of the Government–the Government has updated the text describing its economic …
HM Treasury
10
Recommendation
Thirteenth Report - Net zero and the Fu…
We note the debate at the Productive Finance Working Group Steering Committee on retail access to the ‘long term asset fund’ (LTAF). There should be clarity about who will have access to the LTAF. The Chancellor and the financial regulators should set out the timeframe for the launch of the …
Government response. Since the publication of the Net Zero and the Future of Green Finance report, the Financial Conduct Authority (FCA) has published a consultation on the regulatory rules for the long-term asset fund (LTAF) structure. This consultation closed on 25th June …
HM Treasury
11
Conclusion
Thirteenth Report - Net zero and the Fu…
The Treasury should, as part of its review of Solvency II, consider reforms that could improve the funding of sustainable green infrastructure while maintaining the financial stability of insurers.
Government response. The Government agrees with this recommendation. The Government wants to see a prudential regulatory regime for the insurance sector that is more proportionate and flexible so that it works more effectively and outcomes can be delivered more efficiently. Such a …
HM Treasury
12
Recommendation
Thirteenth Report - Net zero and the Fu…
In the proposed framework for the new UK Infrastructure Bank, the Chancellor should clarify its governance arrangements, how investment decisions will be made, and how it will ensure that it attracts sufficient private capital. In particular, it should clearly set out how the Bank will meet the Government’s commitment to …
Government response. The Government has recently published a framework document setting out further detail on the UK Infrastructure Bank, including its governance arrangements, investment principles and measures to ensure consistency with its climate objectives. As part of the policy development process for …
HM Treasury
13
Recommendation
Thirteenth Report - Net zero and the Fu…
There is a high level of inertia amongst consumers around defined contribution pension fund choice, with most remaining in the ‘default’ fund. The Treasury has been robust in its view that default funds should not be required to move to more green alternatives, but at the same time maintains that …
Government response. Pension scheme governance bodies have primacy in investment decisions and it is not Government policy to require them to invest in specific types of asset. A blend of disclosure, regulation and public investment will prove beneficial in nudging governance bodies …
HM Treasury
14
Recommendation
Thirteenth Report - Net zero and the Fu…
Consumers who hold defined benefits pensions have no choice as to how their assets are allocated. They rely upon their trustees. We note that previous attempts to get defined benefit schemes to acknowledge Environmental Social and Governance concerns have not been entirely successful. In its phased approach to implementing the …
Government response. More than 80% of pension scheme savers and more than 70% of assets are in schemes which will be subject to climate-related regulations by October 2022. The scope of requirements will be reviewed in the second half of 2023, at …
HM Treasury
15
Conclusion
Thirteenth Report - Net zero and the Fu…
The financial services industry broadly accepts that ‘greenwashing’ is detrimental to good consumer outcomes and to the achievement of the net zero goal. The Treasury must work with the FCA to ensure that the regulator has the appropriate remit, powers and priorities, and uses its powers, to prevent ‘greenwashing’ of …
Government response. Clear standards for green investments are essential to maintain trust in the market and mobilise the finance necessary to achieve the net zero goal. In November 2020, the Chancellor announced a UK green finance taxonomy. This will provide firms and …
HM Treasury
16
Conclusion
Thirteenth Report - Net zero and the Fu…
Financial products should be clearly labelled to allow consumers to assess the relative climate impacts of products and to make choices accordingly. However, allowing every firm to create its own consumer sustainability labels may lead to inconsistencies and consumer confusion. The Treasury and the Financial Conduct Authority should consult on …
Government response. As detailed in the green finance policy package16 which the Chancellor announced during his Mansion House Speech on 1 July 2021, the Government will work with the FCA to introduce a sustainable investment label so that consumers and retail investors …
HM Treasury
17
Conclusion
Thirteenth Report - Net zero and the Fu…
We note the concerns expressed about indices, in that the most popular may be carbon-intensive, and those that purport to be green may have carbon-intensive constituents. The risk remains that many consumers are unaware of the carbon- intensity of the indices that their passive investments are tracking. The Treasury and …
Government response. The Benchmarks Regulation places regulatory requirements on the provision and use of financial indices that are used as benchmarks. In 2019, the Benchmarks Regulation was amended to enhance the transparency and comparability of low-carbon benchmarks. The Regulation creates specific disclosure …
HM Treasury
18
Recommendation
Thirteenth Report - Net zero and the Fu…
On the concerns around the constituents of indices described as ‘green’, we note the requirements under the Benchmarks Regulation, which should be used to help consumers make better choices. However, it is clear that in some cases the labels or descriptions of ‘green’ or ‘climate-related’ indices do not necessarily match …
Government response. The Benchmarks Regulation obliges all providers of benchmarks to disclose sustainability metrics or declare that they do not have a sustainability objective. This will help consumers verify the green credentials of benchmarks with a sustainability objective. The Treasury will continue …
HM Treasury
19
Conclusion
Thirteenth Report - Net zero and the Fu…
The Government’s Green Finance Strategy noted the need for innovation in green finance products and services, yet the evidence we have received suggests that the pace of innovation could be accelerated and that more could be done to encourage take-up. The Financial Conduct Authority should seriously consider undertaking further “green …
Government response. Please refer to the FCA’s response for further information.
HM Treasury
20
Conclusion
Thirteenth Report - Net zero and the Fu…
The Prudential Regulation Authority and Financial Conduct Authority should move quickly to incorporate their revised remits to include climate change. We will continue to monitor their progress and ongoing approach to the risks arising from climate change.
Government response. Please refer to the FCA’s and Bank of England’s responses for further information.
HM Treasury
21
Recommendation
Thirteenth Report - Net zero and the Fu…
We have heard differing evidence on whether there should be amendments to the capital regimes to promote net zero. In light of its new remit letter, the Bank of England must now explain its thinking, as to what measures it might consider appropriate for the capital regime to better accommodate …
Government response. Please refer to the Bank of England’s response for further information.
HM Treasury
22
Conclusion
Thirteenth Report - Net zero and the Fu…
The Government has moved from a voluntary to a mandatory approach for ensuring that firms make climate-related financial disclosures. But the process will be run to different timetables for different firms, across different regulators according to the Roadmap published by the Joint Government Regulator TCFD Taskforce. The Treasury, via the …
Government response. The UK’s joint regulator and Government TCFD Taskforce: Interim Report and Roadmap is a world-leading commitment to climate disclosures. Since publishing our Report, we have made significant progress towards achieving our ambition for mandatory climate-related financial disclosures across the UK …
HM Treasury
23
Conclusion
Thirteenth Report - Net zero and the Fu…
We also draw the Treasury’s attention to evidence suggesting that the disclosure regime could be widened in scope, and that firms might usefully offer fuller disclosures.
Government response. The UK’s joint regulator and Government TCFD Taskforce: Interim Report and Roadmap is a world-leading commitment to climate disclosures. Since publishing our Report, we have made significant progress towards achieving our ambition for mandatory climate- related financial disclosures across the …
HM Treasury
24
Conclusion
Thirteenth Report - Net zero and the Fu…
A taxonomy is an important part of identifying what can be considered green investment, so the announcement of a UK taxonomy is welcome. The Treasury and regulators should work at speed to ensure that there is a clear timetable and legislative pathway to deliver a UK taxonomy ahead of COP26 …
Government response. In November 2020, the Chancellor announced that the UK would implement a Green Taxonomy to create a common understanding of which economic activities are environmentally sustainable, improving understanding of the impact of firms’ activities and investments on the environment. On …
HM Treasury