Guest blog by Robin Penfold, partner at UK law firm TLT

They say a problem shared is a problem halved, and our latest research reveals that there are many challenges when it comes to growing the green finance market in the UK.

For example, our report explains that cost is the biggest barrier to the wider adoption of green finance by financial services firms, with more than a third (36%) calling it a “critical” or “significant” barrier.

Other challenges include macroeconomic concerns (also 36%), a lack of relevant expertise on the board (34%) – something that will be challenging but important to fix – and challenges with measurability (32%).

30% of firms say the pandemic has also held them back, highlighting the difficulty they face with balancing competing priorities and the risk that green finance will be pushed aside by other regulatory and operational deadlines if it isn’t supported with strong enough incentives.

Looking around the room

The pandemic has disrupted the acceleration of green finance in other ways, too. Whereas senior managers would previously have had plentiful opportunities to “read the room” at events and get a sense of where the industry was heading, government restrictions and a general sense of unease around the virus have kept people away from each other for almost two years. 

This removal of crucial learning opportunities has to have had a detrimental impact on the rate of progress with shifting finance towards green and sustainable assets. This is a very new area for firms, and one that is by now well-documented as being impacted by a lack of clarity around what’s expected of large businesses and what they should be doing to become more sustainable.

If the UK is to achieve its net zero ambitions, and if finance is to play its role in that, faster progress is needed. The solution will be complex, but greater clarity of expectations and industry-wide collaboration is a crucial part of the puzzle.

Firms’ wish list

The need to address the biggest barrier – cost concerns – is reflected in the measures firms say are required to help the green finance market to flourish. Chief amongst these are tax incentives for companies and investors (61%), subsidies/grant schemes for projects (52%), green securitisation (46%) and expedited regulatory approval for green products (46%).

Regulatory clarity is critical to securing a faster pace of change and creating an incubator for the kinds of policies, products and decisions that are necessary to grow the green finance market. The antithesis of this creates a degree of guess work – the very enemy of progress.

Regulation will also help turn what might be perceived as the cost of being green into the cost of doing business, as all firms will be required to comply with clear, minimum standards.

While only 11% of firms are “very optimistic” about recent policies stimulating the green finance market in 2022, 69% are “very” or “moderately” optimistic and only 3% are “not at all” optimistic. There are various proven models for bringing about significant change in the financial services industry. What’s needed now is clear direction, strong incentives and collaboration.

More information

Robin Penfold, partner at UK law firm TLT, is speaking at the BSA's webinar later this morning - Decoding ESG - reporting requirements, opportunities and risks

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.