Thirteenth Report - Net zero and the Future of Green Finance

The government's response discusses the issuance of green bonds and gilts, but does not address the recommendation to explain why green conditionality was not included in the Recovery Loan Scheme.

The government states the Net Zero Strategy will set out its vision for transitioning to a net zero economy, and lead delivery departments are responsible for sectoral strategies, but it does not specify who at ministerial level will be responsible or how coordination will be ensured.

The government stated that lead departments are responsible for and produce sectoral strategies, citing the BEIS Industrial Decarbonisation Strategy as an example, but did not set out specific mechanisms for integrating net zero targets into spending review commitments or how departments would be held accountable for failing targets.

The government announced a commitment to issue at least £15bn of green gilts in FY 2021/22 and published the UK Government Green Financing Framework to fund green expenditures.

The government deflects the request for its own net zero cost estimates, methodologies, uncertainties, and scenarios in the Net Zero Review, stating instead that lead delivery departments produce sectoral strategies.

The government states that lead delivery departments are responsible for and produce sectoral strategies, citing the Industrial Decarbonisation Strategy, but does not commit to including clear sectoral pathways or a support framework for impacted communities in the Net Zero Review final report.

The government highlights its existing commitments, including the 2019 net-zero target, ambitious interim targets, and the 2019 Green Finance Strategy, as evidence of providing long-term certainty in climate-related policy.

The government states it is confident that the inaugural green gilt will price competitively relative to conventional gilts. It reiterates its debt management objective to minimise long-term costs, thereby setting out its low tolerance for green bonds being more expensive.

The government clarified that the MPC's primary objective is price stability, and its secondary objective, updated to include environmental sustainability, leaves it to the Bank of England to determine how to support these goals.

The government states the FCA has consulted on LTAF rules, expected to be finalised in Autumn, but cannot commit to a launch timeframe as it's industry-led. It notes that while LTAFs can support net-zero transition, the FCA is not proposing to mandate investment in specific assets.

The government agrees with the recommendation and states it wants a more proportionate and flexible regulatory regime. It notes that it has published a response to its Call for Evidence on Solvency II setting out next steps for the insurance sector.

The government published a framework document detailing the UK Infrastructure Bank's governance, investment principles, and climate objectives, confirming lessons from the Green Investment Bank were incorporated. It detailed the bank's £12bn capital and £10bn guarantees expected to crowd in over £40bn private investment, with a review planned by Spring 2024.

The government clarified it does not mandate specific pension investments but relies on disclosure and regulation to foster sustainable investment, noting 15 out of 17 leading DC providers have net-zero commitments. It also confirmed that existing TPR reporting covers default fund proportions and that upcoming mandatory DWP and FCA TCFD reporting, including climate targets, will enable regular reporting on default fund alignment with Net Zero.

The government states that smaller occupational schemes are already required to consider and report on climate change via their Statement of Investment Principles. It further explains that the Pensions Regulator has a climate change strategy featuring annual scheme returns, enforcement, and transparency to improve compliance.

The government announced a UK green finance taxonomy in November 2020 to provide a common definition for sustainable economic activities, reduce greenwashing, and confirmed that the Treasury is working closely with the FCA on this.

The government will work with the FCA to introduce a sustainable investment label, enabling consumers and retail investors to compare the impacts and sustainability of their investments.

The government states that the existing Benchmarks Regulation, amended in 2019, already places regulatory requirements and disclosure standards on financial indices, including specific low-carbon benchmarks, to enhance transparency and comparability.

The government highlights the existing Benchmarks Regulation for obliging providers to disclose sustainability metrics, which aids consumer verification. The Treasury will continue to work closely with the FCA on these issues to ensure accurate index labelling.

The government redirected the committee to the FCA's response for information on encouraging innovation in green finance products and tackling regulatory barriers.

The government redirects the committee to the responses from the Financial Conduct Authority and the Bank of England for further information on this matter.

The government redirected the committee to the Bank of England's response for information on measures for the capital regime to accommodate climate risk.

The government has made significant progress towards mandatory climate-related financial disclosures across the economy, with ongoing consultations and the Chancellor's announcement of economy-wide sustainability disclosure requirements. These include legislation and a roadmap to be published before COP26.

The government states it has made significant progress, including FCA and DWP consultations to extend and introduce TCFD-aligned disclosures. The Chancellor announced economy-wide sustainability disclosure requirements, which will be wider in scope, incorporate TCFD, and include the UK green taxonomy, with legislation and a roadmap planned before COP26.

The government has initiated a UK Green Taxonomy, established a Green Technical Advisory Group, is active in international convergence efforts, and will legislate Technical Screening Criteria by January 2023. A Roadmap for green finance regulation will be published before COP26.