The seven-week inquiry will assess the potential impact of decarbonization on the UK economy, and examine opportunities for the growth of green finance.
By Paul A. Davies and Michael D. Green
On World Environment Day, June 5, 2019, the UK Treasury Committee (the Committee) launched an inquiry into the decarbonization of the UK economy and green finance. The inquiry will scrutinize the role of HM Treasury (HMT), regulators, and financial services firms in supporting the UK government’s climate change commitments, and examine the potential for decarbonizing the UK economy.
UK Treasury Committee
The Committee was established by the House of Commons (the House) to examine the expenditure, administration, and policy of HMT, HM Revenue & Customs, and associated public bodies such as the Bank of England and the Financial Conduct Authority. The Committee is free to choose its own subjects of inquiry, which may lead to a report to the House, or a single day’s oral evidence.
Committee membership reaches across the House benches, and is currently comprised of 11 members. Five members are drawn from the Conservative Party, five from the Labour Party, and one from the Scottish National Party. Recent reports have examined topics such as consumers’ access to financial services, anti-money laundering supervision, and appointment of persons to public office.
UK Prime Minister Theresa May has confirmed that the UK government will adopt the Committee on Climate Change’s (CCC’s) recommended net-zero target by 2050, and will formalize that adoption through legislation. The new target supersedes the 80% greenhouse gas (GHG) reduction by 2050 target, contained in the Climate Change Act 2008. The Climate Change Act 2008 will be amended to incorporate the new net-zero target via statutory instrument, which has already been laid before Parliament.
The Committee on Climate Change (CCC), a statutory body that advises the UK government on carbon budgets, has recommended that the UK government should commit to cutting greenhouse gases (GHGs) to net-zero by 2050 in an attempt to meet its commitments under the 2015 Paris Agreement. The Financial Times described the proposed goal as the “toughest binding target of any big economy.”
The UK Stewardship Code (the Code) was originally published in 2010 following a review of corporate governance. The Financial Reporting Council (FRC) has responsibility for the Code, and promotes the long-term success of companies, outlines principles underlying an effective board, and fosters active investor monitoring and engagement of companies. All UK-authorised asset managers are required to produce a statement of commitment to the Code or to explain why the Code is not appropriate for their business model (the “comply or explain” approach discussed below). As such, there are 305 signatories to the Code, which primarily include asset managers and asset owners (pension funds, endowment funds, and charities).
The Environment Agency has released data indicating that enforcement undertakings in England and Wales reached more than £2.2 million in 2018 — the highest-ever levels within a single year. The amounts raised under these undertakings were given to projects and charities that will benefit the environment and assist in cleaning up parks, rivers, and beaches. In addition, the enforcement undertakings include voluntarily agreed binding commitments to carry out remediation and/or other corrective action.
UK Chancellor, Philip Hammond, has announced plans to launch a Green Finance Institute (GFI), through funding from both the UK government and the City of London Corporation. The initiative aims to help the UK reach its climate targets under the Paris Agreement by developing and promoting investment in the green finance market, while bolstering the future of the UK’s financial services sector. According to the Chancellor, the establishment of the GFI will mean that “firms from across the world can access our one-stop-shop for world-leading climate science, and for capital.”
The Carbon Reduction Commitment (CRC) — which first came into operation on 1 April 2010 — will be abolished at the end of the 2018-19 compliance year, pursuant to the CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 (SI 2018/841) (the Order). The CRC is a mandatory carbon emissions trading scheme that applies to large UK business and public organisations.
ABN AMRO, ING, and Rabobank have teamed up to publish guidelines for investing in the circular economy. The banks have designed the guidelines to help financial services companies around the globe transition towards a circular economy by increasing capital allocated to projects with circular business models (CBMs). These are business models that “strive for 1) employing fewer materials and resources for producing products and/or services; 2) extending the life of current products and/or services through refurbishment and remanufacturing; and 3) closing the loop of products’ life by recycling. In short, CBM seeks to reduce, retain, and recycle.” 
The European Commission (EC) has referred the UK, France, Germany, Hungary, Italy, and Romania to the European Court of Justice (ECJ) for failing to adequately tackle and control air pollution in their respective jurisdictions. The Member States, the EC said, had not produced and delivered “credible, effective and timely measures to reduce pollution as soon as possible, as required under EU law”. The EC had already issued these Member States with a warning in January 2018. Polluted and toxic air is thought to cause over 400,000 early deaths each year in Europe. The actions against the UK, France, and Germany concern exceedances of nitrogen dioxide (NO2), while the actions against Hungary, Italy, and Romania target particulate matter (PM10).