TLT research reveals soaring interest in UK green finance market, but concerns over costs remain a key barrier to progress

Nearly every UK financial services firm is expected to have a ‘green’ offering within a year, but cost is still seen as a “critical” barrier, according to research by law firm TLT in partnership with FinTech Futures.

The survey of 119 senior figures in the financial services sector revealed 39 per cent have already launched green finance products while 53 per cent are planning to do so in the next year, meaning 92 per cent of the UK’s financial services firms should have a green offering by 2023.

The final eight per cent intend to roll out a green product within the next 24 months. As such, by 2024 all the firms that took part in the survey – which included leading banks, credit unions, investors, and asset managers – should have green financial products on top of their usual offerings.

TLT highlighted that although a majority of UK financial services firms have not yet launched green products, headway is being made.

Some 61 per cent of respondents said they have prioritised setting a green finance strategy, while 51 per cent are data gathering and 42 per cent measuring performance.

Firms are also said to be focusing on internal leadership to support their green endeavours, with 91 per cent having hired or planning to hire a “dedicated and experienced” C-level or non-executive expert in green finance.

Robin Penfold, partner at TLT, commented: “Many firms have already made significant progress in establishing green finance strategies, collecting data and measuring performance, as well as turning their attention to the development of green financial products, which we expect to see a lot more of in 2022.

“However, there is still a long way to go. The demands from financial services firms are clear – they want bold action from regulators and policymakers to support the transition to a financial services sector where green finance becomes the norm – it requires public and private sector collaboration.”

Over half of the survey’s respondents said green finance was “critical” or “very important” to their businesses.

According to the report, financial services firms feel the greatest demand for green finance is coming from investors, as climate change increasingly plays a role in their long term planning and the wider policy landscape.

Nearly 90 per cent of firms said that demand for green finance is strong or moderate from investors, while 81 per cent said it is strong among customers and shareholders, and 80 per cent said it is strong from governments.

Yet despite the increasing prevalence of sustainability as a major issue for the financial sector, in the lead up to last year’s COP26 Climate Summit, just 11 per cent of senior leaders felt “very optimistic” about the impact of recent government announcements on green finance.

This, the study highlighted, indicates that “uncertainties continue to linger” and more support for green finance is needed.

The biggest barrier to adopting green finance strategies was seen as cost, with 36 per cent of respondents to the survey calling it a “critical” or “significant” barrier, while another 36 per cent stated macroeconomic concerns remained a barrier to progress.

A further 34 per cent saw lack of relevant expertise as an issue, while 32 per cent said challenges with measurability were hampering progress.

TLT argued that these challenges are “not insurmountable”, and stressed that the survey identifies the “changes needed in order to drive the green finance market forward”.

Some 61 per cent of the respondents said tax incentives for companies and investors will be key going forward, while 52 per cent called for subsidies or grant schemes to help tackle cost concerns.

Penfold added: “Green finance is an opportunity for the entire industry to come together, with government and regulators, to develop the future landscape for the financial services sector. Key to unlocking the opportunity is developing a common understanding of what green finance is and is not.

“Developing a common framework that sets the bar for green finance is key to unlocking the full potential of this market, and to positioning the UK as a leader of the green finance revolution.”

This article first appeared at Investment Week.

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