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The government’s “mixed messages” on climate change could delay efforts by the financial sector to meet net zero carbon goals, MPs on the Environmental Audit Committee (EAC) have said.
In a 70-page report, the EAC states that the attempt to shift the onus of responsibility to the private sector and rely on market mechanisms,“does not go far enough”.
In 2021 alone, banks around the world provided around $742bn in financing for fossil fuel projects, and investment in the sector continues to significantly outpace renewables. The report also said that the government cannot rely on investor behaviour to shift investment as fast as is needed to tackle the climate crisis.
The Global Green Finance Index placed London as the leading green finance centre for the fourth year running in 2023. But to maintain this position, the EAC said the government needed to deliver on a number of initiatives announced at COP26.
The report also expressed concern that the ‘comply or explain’ approach to mandatory transition plans by companies defeats the point of the policy, as a company could meet the requirements by simply disclosing that it does not have a plan.
It said that climate transition plans should be mandatory and that effective monitoring should be introduced to determine their effectiveness.
Following the recent Autumn Statement, and speculation that the government could progress with a carbon border adjustment mechanism (CBAM), the EAC said this should be implemented as soon as possible.
CBAM regulates greenhouse gas emissions by placing tariffs on certain imported goods based on the estimated carbon emissions it took to produce them.
The EAC expressed concerned that the “stop start” approach taken by the government – such as maintaining its ambitions while delaying policy initiatives – risks giving mixed messaging to the financial sector, which could slow its net zero transition in response.
In September, Rishi Sunak announced major U-turns on climate ambitions, including pushing back the deadline for selling new petrol and diesel cars to 2035 and delaying the phase-out of gas boilers.
In that same month, a report found that fossil fuel and industrial agriculture industries in the Global South receive an average of 20 times more financing from banks than governments are receiving for climate solutions.
Witnesses told the EAC that since Russia’s invasion of Ukraine, fossil fuels have seemingly been prioritised in the name of energy security. The committee wants the government to publish quarterly reports that highlight its move towards greater energy independence while staying on track to meet net zero. It also said an independent body should also be tasked with tracking net zero and nature-related financial flows, as well as investment in high-carbon projects.
“Globally, banks continue to pump trillions of dollars into fossil fuels, and simply put, we are not turning the dial fast enough to tackle the climate and nature crises,” said committee chair Philip Dunne MP.
“Enormous strides have been made in the last few years to champion a low-carbon economy, but we’re at risk of this good work stalling through complacency.
“At COP26, the government made ambitious commitments to make even greater progress in embedding climate and nature into financial decision-making. The government should implement swiftly its initiatives on mandatory transition plans, a UK green taxonomy, and carbon leakage mitigation measures. Any delay is likely to send mixed messages to the financial sector that the UK is wavering on its ambitions.”
