3.6.1  Financial Services

531.  Financial Services are small in terms of their own emissions, but own, lend money for and invest in assets and activities in the economy that produce greenhouse gas emissions. The financial sector therefore has a crucial role to play in the transition - both as an enabler of the transition across all parts of the economy, and as a growth opportunity in itself.

532.  Significant investment is needed for the transition to net zero to happen. The Net Zero Strategy estimated that we need additional investment of £50-60 billion per year in the late-2020s and 2030s to reach net zero. This is considerably more than seen to date, leaving a significant investment gap, which will largely rely on private finance to plug.

533.  Green finance is growing rapidly - globally the issuance of green bonds increased 11-fold over the five years to 2021 (see Figure 3.4 below), creating unique opportunities for the UK as a global financial centre. A recent report by McKinsey estimated that the global revenue potential for banks from debt investment in climate finance will average around $100bn annually through 2030,384 suggesting it would be even larger for the wider financial system. This could create significant export opportunities for the UK. And the financial services sector is increasingly recognising the investment opportunities associated with the transition to net zero:

"According to our research, the global green economy has recorded a compound annual growth rate of approximately 14% over the last 12 years, increasing its market capitalisation from $2 trillion in 2009 to more than $7 trillion in 2021. Despite the current geopolitical and economic environment, investors are increasingly looking to allocate capital more sustainably. In a recent survey, we found that 86% of asset owners globally are implementing sustainable investment in their strategies - this is up from 76% in 2021." - London Stock Exchange385

Figure 3.4 - Annual issuance of green labelled debt globally386

534.  Mobilising finance - including the nearly £10 trillion of assets managed by UK institutional investors - is therefore key to funding the transition, as well as an economic opportunity for the UK financial services sector in establishing itself as a leading green and sustainable finance hub.387