Green Finance applies to both inward Foreign Direct Investments (FDI) into sectors like offshore wind (where the UK is the world’s leader), and to the exporting of green financial services such as project finance, green bonds and venture capital, as well as integrating Environmental, Social and Governance (ESG) considerations into the financial system and disclosing such risks.
As a global financial hub, the UK is a leading player in Green Finance – the strength, maturity and international role of its financial sector is proven not just in volume (deals, capital, revenues) but also in international presence and initiative.
UK institutions are strengthened by a unique ecosystem that attracts capital, experience and talent.
They also benefit from the political will in the UK to tackle climate change and to transition the global economy and financial system.
Green Finance is one of the fastest growing sub-sectors of global finance and, while facing intense competition, the UK is leading the way in all areas.
The UK is one of the main global centres for asset management and insurance, and many of the larger firms also invest directly into long-term green projects, matching the maturity profile of their liabilities.
The UK is also a world leader in smaller, specialised green/environmental, social and governance (ESG) Funds (over 20 and increasing).
These manage diversified portfolios of green and sustainable development projects, typically with between £5 billion and £10 billion assets under management (AUM) and established over the past 20 years, as green investing has gone mainstream.
These funds invest in long-term renewable energy and energy efficiency projects (including the construction phase) and increasingly into green transportation (e.g., EVs, hydrogen, energy efficient rail), carbon capture and storage, and nature-based projects such as reforestation, which can generate carbon emission credits, a rapidly growing market. Also, the London Stock Exchange Group (LSEG) has recently introduced its Green Economy Mark, helping investors identify London-listed companies and funds whose revenues are mostly ‘green’.
UK firms across all sectors are well equipped to work in line with this strategy and attract export and inward investment opportunities to the UK.
The objective of the Green Finance Strategy, launched in 2019, is to align private sector financial flows with clean, environmentally sustainable, and resilient growth, supported by government action and to strengthen the competitiveness of the UK financial sector.
Green Finance is not a new financial product, but for the most part it is the application of existing financing tools to green/sustainability projects and companies, such as:
Green corporate finance
Also known as corporate finance or ‘on-balance-sheet finance’, this allows companies like utilities and developers to finance new green developments and construction projects using their own company funds and borrowings.
Green project lending
Usually provided by banks, in which project debt and equity used to finance a specific green project are paid back from the cash flow generated by that project alone, also known as project finance or ‘off-balance-sheet finance’.
Retail finance
Bank loans for individual consumers where the use of funds is for environmental purposes: green mortgages, car loans for electric vehicles, etc.
Capital markets
By providing a market for tradable securities listed on global stock and bond exchanges, mainly green bonds, and green equities, this allows businesses to raise long-term funds and to refinance construction-phase finance.
Carbon credits
Effectively granting ‘permits to emit’ various greenhouse gases within a constantly decreasing cap over time, and which are normally government mandated.
Venture capital and private equity
Forms of finance for small and growing green businesses, in particular, those developing innovative clean technologies e.g., hydrogen fuels, biofuels, graphene, carbon capture and storage, batteries and smart grids.
Asset management
The management of large pools of funds from institutional investors, such as public and private pension funds, insurance companies etc., that falls into two main categories:
Large, global, and diversified asset managers, where the challenge is to encourage them to develop Environmental, Social and Governance (ESG) investment products and strategies, which has increased enormously in recent years.
Smaller, specialised Green/ESG Funds which manage diversified portfolios of green and sustainable development projects. The UK has many successful examples of these types of funds which increasingly operate globally.
Insurance-related products
Insurers are on the front line of understanding economic damage and knock-on effects arising from climate change, providing traditional natural catastrophe insurance policies. They also provide ancillary services such as risk modelling, and newer solutions such as catastrophe and resilience bonds, all based on reduced premiums and coupons linked to reducing risk. Centred on Lloyds of London, the UK is the world’s leader in this sector.
Professional business services
The Professional and Business Services sector is comprised of a broad range of subsectors with specialist experience in delivering clean growth solutions including: Accountancy, Actuarial, Advertising, Architecture, Consultancy, Engineering, Law, Recruitment and Surveying.
As diverse as they are, these subsectors play a crucial enabling role in supporting businesses of every size and in every location on their journey towards net zero and in developing green solutions themselves.
With the Professional and Business Services sector already a proven UK exports leader, providing a third of the UK’s total services exports and globally second only to the US, Clean Growth is a major opportunity for the sector to demonstrate its credentials and strengthen its exports footprint.
Many of the services provided by Professional and Business Services firms are not necessarily new, but they are evolving and expanding their services to meet the needs of Clean Growth.
As a major investor in, and trainer of, its people, the sector has the skills, capacity, and agility to innovate quickly and bring in the best talent to deliver projects across public and private sector domains. Often working to complement each other, many Professional and Business Services firms combine to enable projects to be delivered sustainably and successfully.
UK Export Finance
UKEF is the UK Government’s export credit agency (ECA).
Its purpose is to ensure that no viable UK export fails for lack of finance or insurance from the private sector, while operating at no net cost to the taxpayer.
UKEF helps UK businesses win, fulfil, and get paid for international business by providing guarantees, insurance, and loans to support export activities.
It helps UK companies:
- win export contracts by providing attractive financing terms to their buyers
- fulfil contracts by supporting working capital and trade finance
- get paid by insuring against buyer default
UKEF supports the global transition to a low-carbon economy by responding to the evolving needs of UK companies and supporting them in exporting and promoting support for Clean Growth, transition, and climate adaptation/resilience technologies.
All UKEF products can support Clean Growth and are divided into three categories:
- Products helping UK exporters of goods or services to win contracts through facilities including UKEF Buyer Credit Facility, Direct Lending Facility
- Direct lending funds – valued at £2 billion – allocated to support Clean Growth projects, which is aligned with the Green Bond principles
- Standard Buyer Loan Guarantee which covers a loan to an international buyer to finance the purchase of capital goods, services and/or intangibles from a UK supplier
Being a global financial hub and with our experience of providing the backing and services clean businesses and projects require, the UK is attracting an ever-increasing number of domestic and international investors and customers.
Clean growth: green finance and professional business services
As desirable as it is, the transition to clean energy is a commercial enterprise, and one which requires high level finance and appropriate services to fund its progress.
Finances and services that must not only reflect the values of sustainability but implement them throughout the financial supply chain.
If you want your business to get involved in the financial aspects of Clean Growth and the international transition to clean energy, visit Great.gov.uk and then talk to us about how we could help your business to benefit.