Financing climate action with positive social impact: How banking can support a just transition in the UK
Over the next decade, banks and the financial sector as a whole will need to show how they are aligning their balance sheets with the UK’s net-zero greenhouse gas emissions target, how they are enabling households and companies to become resilient to climate change impacts, and how the process of often disruptive transition can be steered so that it is fair and inclusive. These goals combine to form the challenge of the just transition, a task that has become even more important with the shock of COVID-19.
This report presents research findings and recommendations for how to achieve these aims. It focuses primarily on the role of the UK’s banks and building societies, but it also contains recommendations for other lenders and government at all levels.
- At the heart of the recovery from COVID-19 should be the convergence of at least two national imperatives: the creation of a successful net-zero-emission economy and ‘levelling up’ economic and social prospects across the UK. This is the challenge of the just transition – delivering climate action that generates positive social impact.
- Finance will be crucial to making the just transition a reality, from institutional investors, banks and building societies as well as public finance.
- Some banks are starting to align their business models with net-zero. Efforts like these now need to be scaled up in ways that help to make the economy more resilient, more inclusive and more regionally balanced by extending their strategies to incorporate the just transition.
- The just transition is not yet-another framework for banks to adopt. Instead, by looking through the just transition lens, banks can strengthen their existing initiatives to cut climate risk, increase green finance and build resilience over the long term.
- Banks can make considerable contributions to the just transition through their own efforts but their scope for action is significantly influenced by the policy regime in terms of correcting market failures, regulating the financial system and allocating public finance to generate public goods. This is an agenda with high potential for partnership between the financial sector and government.
Overarching recommendations for banks
- Board and senior executive leadership commit to ensuring that the just transition agenda is incorporated into institutional strategy and culture
- Make the just transition central to the bank’s core purpose and culture
- Outline a clear institutional strategy for how the bank plans to operationalise its just transition commitments
- Serve customers by developing a core portfolio of financial products and services that helps them achieve net-zero in a socially inclusive manner
- Work with stakeholders to respond to diverse place-based needs
- Engage actively in policy to encourage the right enabling framework
- Engage in dialogue with others to develop breakthrough partnerships
- Increase accountability by reporting on progress against just transition goals
Overarching recommendations for government
- Make a strategic commitment to a just transition
- Kick-start the just transition through the UK’s COVID-19 recovery plans
- Mobilise public finance behind the just transition
- Integrate the just transition into financial regulation of climate risk
- Commit to supporting place-based action to deliver a just transition
- Make the just transition a key part of international climate action