Green finance and innovation

Innovative new sources of finance are fundamental to the development of green technologies needed to reach net zero.

Green finance is experiencing rapid growth within the low carbon economy, and the UK has a solid foundation in various related areas, including green corporate finance, green project lending, retail finance, venture capital, and private equity.

With robust financial support in place, and bolstered by the presence of world-class innovators and entrepreneurs, the UK aspires to establish itself as a global frontrunner in the technologies required to decarbonize economies. Leveraging the international reputation of its world-leading financial sector, the UK aims to stimulate increased private investment, fostering innovation and effectively managing climate-related financial risks.

Opportunity highlights

Green finance is instrumental in facilitating the large-scale and swift deployment of clean investments. In line with market conditions, the UK is set to issue its inaugural Sovereign Green Bond in 2021.

This is expected to be the first of several issuances, with subsequent bonds being issued as investor demand increases. The proceeds from these bonds will be channeled towards the development of sustainable projects, financing critical infrastructure investments, and generating green employment opportunities throughout the nation.

Commercial maturity

The United Kingdom stands as a global financial powerhouse and holds a prominent role in the field of green finance. Its financial sector is not only characterized by its considerable volume of deals, capital, and revenues but also by its extensive international presence and proactive initiatives.

UK financial institutions benefit from an ecosystem that draws capital and talent, and a strong commitment to addressing climate change and driving the transition of the global economy and financial system towards sustainability.

The UK is home to a wealth of expertise in green finance, exemplified by:

  • Asset managers who have successfully developed specialist green funds.
  • Investment banks deeply engaged in the green bond market.
  • The world’s largest specialty insurance market located in London.
  • A leading role in the international adoption of the Task Force on Climate-related Financial Disclosures (TCFD) reporting.
  • The London Stock Exchange’s distinctive Green Economy Mark, aiding investors in identifying London-listed companies and funds primarily generating ‘green’ revenues.
  • A diverse and proactive consultancy sector with strong ties to academia and scientific research.

UK assets

The UK has established several institutions to promote and lead in the field of green finance:

Green Finance Institute

The Green Finance Institute is a leading advocate for the UK’s green finance initiatives on the global stage. It fosters collaboration among international practitioners to develop sector-specific solutions that direct capital towards an environmentally sustainable economy.

National Infrastructure Bank (UKIB)

The UKIB prioritizes green finance and has been allocated £12 billion in government-backed equity and £10 billion in guarantees to leverage private sector investment in sustainable infrastructure and projects.

UK Centre for Greening Finance and Investment (CGFI)

The CGFI is a national center dedicated to accelerating the utilization of climate and environmental data and analytics by financial institutions worldwide. It aims to position the UK as a leader in integrating climate and environmental risks into mainstream financial decision-making and the financing of sustainable projects and infrastructure.

These institutions, in conjunction with the City of London, play pivotal roles in establishing the UK as one of the world’s foremost green finance hubs, with UKIB and CGFI also having a presence in Leeds.

R&D capability

The UK government has set a clear ambition to increase the country’s total R&D expenditure to 2.4% of its GDP by 2027. This commitment aligns with its broader objectives for innovation and sustainability.

HM Treasury’s Net Zero Review outlines the forthcoming steps in the UK’s journey towards achieving net-zero emissions. It will explore options related to tax, government spending, regulations, and other policy levers to maximize opportunities for growth while addressing climate goals.

A key strategy involves enhancing the alignment of research and development strengths to attract foreign investments and improve access to finance for emerging businesses, particularly those focused on early-stage innovations.

The UK is also actively positioning itself, particularly the City of London, as a global leader in voluntary carbon markets. This initiative responds to the recommendations of the independent Taskforce on Scaling Voluntary Carbon Markets, and it aims to provide investors with a clear framework and transparency in directing low carbon finance toward a net-zero economy.

The £1 billion Net Zero Innovation Portfolio will focus on ten priority areas in line with the UK government’s ten-point plan for a green revolution. These areas encompass various domains, including offshore wind, energy storage, hydrogen technologies, and industrial fuel switching, all contributing to the country’s drive towards a sustainable future.

Business and government support

The UK is leveraging the esteemed international reputation of its financial sector to encourage private investment in support of innovation and climate financial risk management. The Department for Business, Energy and Industrial Strategy (BEIS) is actively promoting investment through various initiatives.

Clean Growth Fund (CGF)

The CGF is a recently established £40 million fund, with £20 million contributed by BEIS and another £20 million from two private sector investors. This venture capital fund, operated commercially, aims to raise a total of £100 million. It is focused on accelerating the deployment of innovative clean technologies by directly investing in companies with promising clean tech solutions.

Energy Entrepreneurs Fund (EEF)

The EEF is a competitive funding scheme that offers support for the development and demonstration of cutting-edge technologies, products, and processes in energy efficiency, power generation, and heat and electricity storage. Since 2012, the government has invested over £75 million in grant funding to over 130 companies. These companies have been able to leverage more than £100 million in private funding as a result of this support.

These initiatives demonstrate the UK’s commitment to promoting innovation, advancing clean technologies, and securing private investments to drive sustainability and address climate-related financial risks.