Green Finance Taskforce report

The Green Finance Taskforce published a highly significant (100 page) report on 28 March 2018.

The report, which aims to help accelerate ‘green finance’ in the UK ,  can be downloaded here.

The government landing page introduces the report as follows:

The Green Finance Taskforce report sets out a series of recommendations on how the government and the private sector can work together to make green finance an integral part of our financial services. These include:

• boosting investment into innovative clean technologies
• driving demand and supply for green lending products
• setting up Clean Growth Regeneration Zones
• improving climate risk management with advanced data
• building a green and resilient infrastructure pipeline
• issuing a sovereign green bond”

The GFI (Green Finance Initiative) , of which this is a part, introduces this welcome and significant report as follows:

The Green Finance Taskforce report, “Accelerating Green Finance” calls on Government to consolidate the UK’s position as a world-leading hub for green finance.

The report, suggests that the creation of a new Green Finance Institute will act as a ‘one-stop-shop’ for all work relating to the sector – from international engagement to green fintech, climate and data science.

It also recommends that Government should issue a green sovereign bond to help fund a number of national green projects, including the UK’s flood defence and resilience.

The global low carbon transition will redefine the UK economy. From the largest infrastructure projects to the fabric of our homes, the transition creates a huge opportunity for the UK to lead the world in cutting emissions while driving growth. The UK’s status as host to a world-leading financial services centre means that the UK has the chance to seize the economic opportunities that green finance offers…  read more

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Regarding financial advice a key area of interest is on p56 – as follows:

(please note the formatting has been lost as a result of cut and pasting):

RECOMMENDATION 21

Investment advisors should ask clients about their sustainability preferences, and investment funds marketed directly to individuals should clearly state the ESG impacts of the fund.

Market surveys regularly report that social and environmental objectives are an important factor for a majority of retail investors (125) and the EU Markets in Financial Instruments Directive (MiFID II) requires advisors to offer products that are suitable to meet their customers’ needs.

However, advisors rarely ask their clients about their investment preferences. Correcting this failure would connect individual citizens more closely with the sustainability agenda, as well as help stimulate the flow of capital towards green projects.

Investment advice more broadly is currently the subject of an ongoing review by the FCA, but the Green Finance Taskforce understands that issues surrounding sustainability have not yet been considered. This Green Finance Taskforce notes that the EU high level expert group on sustainable finance recommended that the European Securities and Markets Authority (ESMA) ‘require investment advisors to ask about, and then respond to, retail investors’ preferences regarding the sustainable impact of their investments, as a routine component of financial advice’.(126)

This Green Finance Taskforce further notes that the European Commission Action Plan on Sustainable Finance proposes that subject to the outcome of its impact assessment, the Commission will amend the MiFID II and Insurance Distribution Directive delegated acts in the second quarter of 2018 to ensure: that sustainability preferences are taken into account in suitability assessments; and that it will invite ESMA to include provisions on sustainability preferences in its guidelines on the suitability assessment to be updated by the end of 2018. Technical guidance would be needed on the nature of the questions asked, but these should be kept simple. Importantly, the questions should not be framed in terms of a financial trade-off, particularly where there is evidence from multiple studies to indicate that sustainable investments can achieve higher returns than approaches that do not incorporate sustainability criteria. (127)

The FCA should issue similar clarifying guidance for the UK directly. It is an opportunity for the FCA to move quickly and assume a leadership role internationally on sustainability issues.

Furthermore, all investment funds marketed directly to individuals should have clear and simple disclosures about the environmental and social impacts of those funds. In the UK, many retail investors are likely to invest money in products bought directly, without private financial advice. Such retail investors will have limited appetite to wade through pages of disclosure documents, much less the ability to analyse them.(128)

The FCA should consider working with industry to develop simple labelling schemes that would both inform and better protect retail investors by providing clear, simple indicators for the nonfinancial impact of investment funds. This would facilitate better-informed decision-making by investors who have a preference to improve the environmental and social impact of their capital. Existing Government-agreed targets such as the Sustainable Development Goals, and the Clean Growth Strategy at a UK level, should provide the benchmark against which impacts are assessed. Practical approaches that recognise current data limitations are already under development by industry and academic leaders,(129) but any approach would need FCA endorsement to encourage take-up at scale. If market-driven, such a scheme could be voluntary.”

Please see document for sources.  Full URL:

https://www.gov.uk/government/publications/accelerating-green-finance-green-finance-taskforce-report

A briefing on the report and its 30 recommendations was sent to all members and is now available on the UKSIF website.