The UK government is to spend £10 million (about $13.9m) to establish green finance research hubs in London and Leeds.
The aim of the new twin-site UK Centre for Greening Finance and Investment (CGFI) will be to put climate and environment ‘at the heart of UK financial decision-making’, according to the announcement this week.
The centre will begin operations in April, with physical hubs in the capital and the Yorkshire city opening ‘months’ later.
The creation of the CGFI comes as big companies face mounting pressure to report their climate-related risks and the profile of environmental, social and governance (ESG) reporting continues to grow.
In establishing the CGFI, the government is following up on a commitment in its Green Finance Strategy, published in 2019, ‘to reduce information asymmetries and promote transparency in the availability and application of climate-risk information’. Its creation also follows chancellor Rishi Sunak’s statement on the future of UK financial services delivered in November last year in which both green finance and fintech featured prominently.
Centre to inform the UK’s ‘net zero’ push
The government has made the £10m investment through non-departmental body UK Research & Innovation (UKRI).
The CGFI will provide ‘world-class’ data and analytics to financial institutions and private companies such as banks, investors and insurers, the government said, adding that the hubs’ research will also help create ‘world-leading’ products and services that tackle climate change, such as technologies that measure severe storms and flood risks for property investors.
In its Green Finance Strategy, the government established an HM Treasury-chaired taskforce to explore the most effective approach to implementing the Financial Stability Board (FSB)’s Task Force on Climate-related Financial Disclosures (TCFD)’s recommendations, made in 2017, to improve and increase reporting of climate-related financial information. Sunak announced three months ago the government’s intention to make TCFD-aligned disclosures mandatory by 2025, with a significant portion of mandatory requirements in place by 2023.
The UK parliament passed legislation in 2019 requiring the government to reduce the UK’s net emissions of greenhouse gases by 100% relative to 1990 levels by 2050 (‘net zero’).
In the announcement of the CGFI’s creation, economic secretary to the Treasury and city minister John Glen said: “We’ve set the ambition for net zero – now we must ensure our financial sector has the tools and information to get behind the transition. We’re already improving the climate data available by mandating TCFD-aligned disclosures across the economy and implementing a green taxonomy.”
Universities support hubs’ global ambition
The CGFI will involve an Oxford University-led consortium of institutions, including Leeds University, Bristol University, Reading University, Imperial College London, the Alan Turing Institute, Satellite Applications Catapult and the Science and Technology Facilities Council (part of UKRI).
It is also partnering international organisations including the World Bank and the Switzerland-headquartered United Nations Environment Programme Finance Initiative that will help the centre ‘accelerate its reach globally’, according to the government announcement.
The CGFI’s director and principal investigator is Dr Ben Caldecott, who is director of Oxford University’s sustainable finance programme. Environment Agency chair Emma Howard Boyd is chair of the CGFI’s advisory board.
The Bank of England’s (BoE) ‘Climate Biennial Exploratory Scenario’ – an exercise to test the resilience of the business models of the largest banks, insurers and the financial system to climate-related risks and therefore the scale of adjustment that will need to be undertaken in coming decades for the system to remain resilient – is due to be presented in June.
Welcoming the CGFI’s creation, the BoE’s executive sponsor for work on climate change, Sarah Breeden, said: “Integrating climate and environmental data and analytics into decision-making will allow financial institutions to identify, measure and manage the financial risks and opportunities from climate change, and so support the Bank’s objective to ensure the financial system is resilient to these risks and supportive of the transition to net zero”.