How the new UK government can lead the world in climate finance

London: Amid the challenges of climate change and the low-carbon transition, the new UK government has a historic opportunity.

The right policies on climate finance can transform the UK into a net zero financial hub, spurring innovation and promoting economic growth. A focus on climate finance will not only advance global climate goals, but also create a more vibrant, resilient and equitable Britain.

So what should the new government do in its first 100 days to set the nation on a course for global leadership in climate finance? My co-editors and I at King’s Business School convened 32 of Britain’s leading climate finance experts to try to answer that question.

In a timely guide to transformative policy action called Accelerating Transition, opens new tab, the authors focused their recommendations on five areas:

1) Climate risk management – Effective climate risk management is essential for safeguarding the UK’s economy and ensuring a resilient future. The government should focus on the creation of scenarios that enable the assessment of the consequences of climate and economic tipping points. Climate stress testing should be enhanced to explore the financial stability implications of physical and transition risks.

Given the impacts that climate change is already having, policymakers need to consider adaptation and resilience in all major policy questions. In addition, the UK can issue adaptation bonds to support local and national adaptation projects. On the transition side, financial regulators should require firms to disclose their projected impairments in a net zero aligned world.

Data and regulation – Climate finance and effective capital allocation depend on good data, which itself relies on strong regulations that produce transparent, comparable and decision-useful information. That information includes climate risk data as well as greenhouse gas (GHG) emissions data. To gain a complete picture of UK emissions, regulators should set the expectation that firms of all sizes will need to report.

Policymakers can also enhance the toolkits that regulators have to confront the climate crisis. These range from increasing capital gains tax rates on high emitters to expanding the mandate of the Bank of England to explicitly consider climate and sustainability. Furthermore, given the globalised world, UK regulators should look to promote interoperability on sustainability standards with their peer regulators in other jurisdictions.