UK government's updated Net Zero Strategy welcomed by finance industry

The Government's updated Net Zero Strategy, which now recognises the key role played by UK-based professional bodies, has been welcomed by the finance industry.

A "heightened focus" on education and skills will help develop clean, resilient and prosperous economies that work for everyone, says Tracy Vegro, CEO of The Chartered Institute for Securities & Investment (CISI).

The CISI is a co-signatory to the Green Finance Education Charter, a coalition of the world's leading professional bodies with the aim of integrating green and sustainable finance principles into the education and training programmes of finance professionals worldwide.

The Charter currently comprises 14 professional bodies, representing around 1 million finance professionals and includes signatory members from those in the accounting, actuarial science, audit, banking, insurance, investment, risk management and treasury sectors.

It emerged as part of the UK government's first Green Finance Strategy, published in July 2019.

The plan had three main objectives: Greening finance by supporting the financial services sector to align with the UK's net zero commitment, financing green by mobilising private investment, and supporting financial services to capture the opportunity presented by the transition to a net zero and nature-positive economy.

Despite the well-meaning intention of these targets, the government has since faced criticism for its efforts to achieve net zero.

Last year, the High Court ordered the government to outline exactly how its net zero policies would achieve emissions targets after a legal challenge from environmental groups claimed it had failed to include the necessary policies to deliver the promised emissions cuts.

In August, a 600-page assessment of the UK's journey towards net zero targets by the Climate Change Committee declared that "goals were being undermined by failures in delivery programmes."

There was a "shocking gap", it reported, in policymaking to drive better insulation of homes. Progress on reducing farming emissions had been "glacial". It concluded that the "current strategy will not deliver net zero" by 2050, as legally required.

Prime Minister Rishi Sunak also failed to include the government's net zero strategies in his five key priorities for this year, and he was reluctant to appear at the November Cop27 Summit in Egypt.

However, in May 2022, the government issued a call for evidence to obtain evidence and views from stakeholders to support the development of an update to the UK's Green Finance Strategy.

Then last month, they released an updated edition titled "Mobilising Green", which sets out how the UK government will pursue its ambition to become the world's first net zero-aligned Financial Centre - by equipping the market with the information and tools necessary to drive the transition.

The new plan recognises the role of public financing bodies to commercialise and finance the green technologies needed to transition to net zero.

This addition is "a step in the right direction" according to Vegro, who believes a higher priority must be placed on upskilling financial services sectors.

This model is not just important for environmental reasons - research by the World Economic Forum (WEF) estimates that by 2025, 85 million existing roles will be displaced due to factors such as technology and automation.

As a result, the need for reskilling across financial services has never been greater as the industry faces a significant shift in the skills requirements for its workforce, increasing skills gaps across the UK and a greater demand for talent.

The data suggests that over a four-year period, a company with 30,000 employees could potentially save between £75 million and £115 million by upskilling current employees into the roles they need to be filled.

One of the ways financial services firms need to change, says Vegro, is by investing more in the capacity and capabilities required to support sustainability commitments and the UK's net zero goal.

A recent report by BloombergNEF found that global investment in cleaner energy is on the verge of overtaking spending on fossil fuels for the first time ever after exceeding $1 trillion last year.

This is up 31 per cent on the previous year and marks the first time the investment total has been measured in trillions.

Despite this increase, the research group BloombergNEF believes that spending on energy transition technology must immediately triple to meet the target of net-zero emissions by 2050 to combat climate change.

In order to educate businesses on the importance of the government's net zero strategies, and their role in achieving it, the CISI developed a Sustainable and Responsible Investment Professional Assessment, a short course of online self-learning for businesses.

The program focuses on establishing an understanding of environmental, social, and corporate governance (ESG) and its integration, greenwashing, what the global developments are and how this might all apply to consumers.

ESG is a set of standards measuring a business's impact on society, and the environment, and how transparent and accountable it is.

In recent years, the importance of ESG for businesses has risen dramatically.

According to the Confederation of British Industry, two-thirds of investors now take ESG factors into account when investing in a company.

By 2021, 86 per cent of S&P 500 firms regularly issued some kind of ESG-related report, up from 35 per cent of publicly traded companies in 2010.

It is hoped that the government's latest iteration of the net zero strategies will encourage finance sector firms, regulators and professional bodies to work with the government to raise ambitions and build sustainable finance capacity and capabilities for all.

Globally, there remains a problematic divide over fossil fuel pledges.

The world's leading developed economies are all targeting net-zero emissions by 2050 or sooner after signing the Paris Agreement to cap global warming at well under two degrees Celsius.

However, they differ on how to respond to the energy squeeze caused by Russia's war in Ukraine, with host Japan among those arguing for more leeway on fossil fuels to protect energy security.

On Sunday, the G7 nations set big new targets for solar power and offshore wind capacity, agreeing to speed up renewable energy development and move toward a quicker phase-out of fossil fuels.

But they stopped short of endorsing a 2030 deadline for phasing out of coal that Canada and some other members had pushed for, and left the door open for continued investment in gas, saying that sector could help address potential energy shortfalls.