UKSIF research finds more favourable policies could see up to £100bn AUM shifting towards sustainable finance in the UK

by | May 15, 2024

UKSIF research finds more favourable policies could see up to £100bn AUM shifting towards sustainable finance in the UK

  • 69% of business decision-makers in the finance sector agreed that the lack of certainty over sustainability policy and regulation is limiting their investment in the UK.
  • 95% of large UK finance firms would increase their investment in sustainable/green projects in the UK if favourable green policies were implemented.
  • Nearly eight in ten (77%) have said that greater harmonisation of financial sustainability standards globally would have a positive impact on companies investing. 

The UK Sustainable Investment and Finance Association (UKSIF), which brings together 300+ members managing over £19 trillion in global assets under management (AUM), has today released a report showing that the UK is at a key inflection point when it comes to sustainable finance. After years of trail-blazing and being ranked number one on the Global Green Finance Index, the UK’s world-leading position is under threat. 

The UKSIF Financing the Future: Financial Services Report calls for supportive policies and regulation in three key areas to strengthen the UK’s sustainable finance sector, and to create a more attractive environment for the growth of sustainable finance and private investment at large. 

As part of the research, UKSIF surveyed 100 financial services organisations representing approximately £1 trillion in annual turnover and over £200 billion in green investments in the UK. While 83% of those surveyed have expressed that the UK is still their top market for sustainable finance activity, lack of government clarity and supportive policy is creating a clear direction of travel, with two in three (65%) saying that they already have or plan to move investments out of the UK to a market that is more supportive of their sustainability goals. 

UKSIF is calling on the government to take action to reverse this trend, through the implementation of a number of practical and cost-effective policy measures. Its research showed that 95% of respondents would increase their investment in the UK either through new projects (40%), existing projects (34%), or both (21%) if favourable policies are implemented. From those surveyed alone, this would represent a potential shift of an estimated £100bn in AUM.

Within the report, UKSIF highlights three key policy areas required to shift the UK financial system towards greater sustainability, including: 

  1. Deliver a clear and world-leading sustainability disclosure regime 
    • Critical steps include the adoption of the International Sustainability Standards Board (ISSB) standards, the introduction of mandatory corporate transition plans and crucially a UK green taxonomy. 

68% of finance companies agree that SDR will be helpful in increasing their investment in sustainable finance in the UK.

  1. Empower investors by clarifying the fiduciary duty of pension schemes 
    • TPR must issue clarification to make it clearer to pension schemes that factoring in financially material ESG issues and actively managing associated risks and impacts is consistent with fiduciary duties. 
    • Clarification of fiduciary duties from policymakers would address the lack of clarity in the market that has arguably contributed to a more risk-averse culture of investing in the UK.
    • Calling for investment consultants to be brought under formal FCA regulatory scope. 
    • 72% of large finance firms in the UK say clarity of fiduciary duty in relation to ESG for UK Pension Schemes Trustees would help them in making investment decisions.
  1. Embed biodiversity into the regulatory framework
    • If the UK is to meet its commitment to halt nature loss by 2030 and meet international commitments, policymakers and regulators must turn their focus beyond climate change risks alone.
    • The Government must look to the incorporation of the Taskforce on Nature-related Financial Disclosures (TNFD) framework, specifically through support of the creation of a new ISSB standard for biodiversity and nature, IFRS S3.
    • A new biodiversity-specific standard will better support financial services firms and companies in the UK and globally to address the financial risks posed by damage to the world’s biodiversity and reducing the economic impact on GDP.
    • Over three in five (61%) of finance firms support the incorporation of the Taskforce for Nature-related Financial Disclosures (TNFD) framework into UK regulation.

James Alexander, CEO at UKSIF comments: “The UK is facing a crucial inflection point that could see it either close the remaining gaps and benefit from the great strides we have taken in our global leadership on sustainable finance to date; or lose its hard-won position as a leader.

The recent flipflopping on wider sustainability policies, continued absence of detailed policy frameworks for various sectors, alongside secondary factors such as a lack of clarity from policymakers in creating a clear and stable financial services regulatory framework, is helping drive away much needed private capital into the UK that can help progress the country towards net-zero.”

UKSIF has worked closely with organisations and businesses across the sector to understand what policies and regulation will be needed to strengthen the UK’s sustainable finance sector and help the UK meet net zero ambitions. The following organisations have endorsed for these measures: Aldersgate Group, ShareAction, Bankers for Net Zero, Impact Investing Institute, Make My Money Matter, B Lab UK.

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