UK government review: ‘Make the transition financially viable for business’

Lawmakers must be ‘clear-eyed’ about profit motive, says 133-page report, suggesting taxes, subsidies and legal protections for forward-looking climate statements

Advisors have told the new UK Government to intervene to make the climate transition more affordable for companies, including through taxes, subsidies and incentives for green borrowing.

The 133-page Transition Finance Market Review, published today, was commissioned by the previous conservative government and undertaken by a group of more than 40 experts.

Anglo American and Ricardo were the only real-economy companies participating directly in the group, although others were consulted anonymously, according to the report.

Representatives from the Confederation of British Industry were included, along with many of the UK’s largest banks, investment houses, accountancy firms and NGOs.

Building on the work done last year by the Transition Plan Taskforce (TPT), the group urged policymakers to be “clear-eyed” about the fact that capital will only flow into areas markets think will be profitable.  

“The review has consistently heard from stakeholders that unless the risk-return profile of transition investments is comparable with, or better than, available returns from green and traditional (carbon intensive) investments, transition finance will not flow at scale,” it said.

It pointed out that the high-interest environment rendered any minor pricing benefits for ‘green’ labelled debt worthless, adding that “it is not realistic to expect financial institutions to subsidise the markets to any meaningful degree”.  

Instead, the review says the government and regulators should consider following in the footsteps of Singapore by introducing a “time-limited incentive scheme” that covers the cost of labelling debt green or sustainable, especially for SMEs.

It also recommended de-risking investments into key areas, and adjusting taxation and subsidy regimes to help companies reach net zero.

Transition plans: disclosure, assurance and legal protection

The review reiterated the need to make transition plans mandatory for the largest listed and private companies in the UK, as well as financial institutions, in line with the guidelines produced by the TPT.

The new government has already made that commitment, but the report’s authors want it to be explicit about how and when it will roll the measures out, and to provide sectoral decarbonisation pathways to give firms more clarity about the national direction of travel.

“The review has heard concerns from the market over the lack of a clear, sector-specific definition of what it means to ‘align with the 1.5C goal of the Paris Agreement’,” the document stated.

“In the absence of such definitions, companies making statement about their degree of alignment risk exposing themselves to undue legal and reputational risk.”  

To reassure firms, the review suggests that the Financial Conduct Authority extends the idea of ‘protected forward-looking statements’ – where entities can’t be held legally responsible if speculative statements made in good faith don’t come to fruition – to climate-related disclosures.

It also called on the Institute of Chartered Accountants to produce a plan for the development of assurance methodologies for transition plans, in line with TPT’s guidance.