UK's climate finance leadership faces test amid policy inertia and sustainability shifts
The UK’s long-term economic growth hinges significantly on maintaining its leadership role in transition finance, a message strongly underscored at the recent Climate Financial Risk Forum 2025 Symposium in London. The panel discussion titled “Investment Opportunities and the Future of Sustainable Finance” highlighted transition finance as pivotal for the UK to unlock economic potential while managing climate risks. Rt Hon Chris Skidmore OBE, chairing the UK Transition Finance Council’s Pathways, Policies, and Governance Working Group, emphasized that transition finance is “the only economic game in town,” underscoring its critical importance for the net-zero strategy. Skidmore called for renewed momentum to focus not just on funding new green assets, but also decarbonising existing ones, with the government’s Transition Finance Playbook designed to ensure credible finance plans accompany local projects from inception. He urged continuity in political commitment ahead of the next general election to sustain investor confidence.
James Alexander, CEO of the UK Sustainable Investment and Finance Association (UKSIF), reinforced the need for long-term policy clarity to motivate investors backing companies’ transition plans, which must be detailed on a company-by-company basis. Alexander also pointed to ongoing barriers such as inconsistent policy and a shortage of investible projects despite frameworks being in place. He stressed that the UK’s sustainable finance stature should extend beyond domestic borders, leveraging its financial expertise to deploy capital globally.
The UK has seen notable investment in infrastructure related to green technologies, with Ingrid Holmes, Deputy CEO of the Green Finance Institute, citing £38 billion already secured in infrastructure debt this year, with expectations to reach £50 billion by year-end. These investments anchor key industrial decarbonisation clusters, notably in carbon capture, hydrogen, and smart-electricity infrastructure, with projects in regions like Teesside and Liverpool Bay leading the way. Holmes also highlighted emerging opportunities in the water sector, where multi-billion-pound projects in water resilience signal maturation of adaptation finance into a genuinely investible area.
However, some challenges remain. The UK government’s decision to scrap its proposed green taxonomy—a framework intended to define sustainable economic activities—has stirred debate. Initially aimed at boosting green investments and preventing greenwashing, critics argued that the taxonomy was too complex and impractical. The finance ministry concluded it would not effectively advance the green transition. The cancellation aligns with broader European efforts to simplify sustainability reporting, though UKSIF expressed disappointment and called for rapid progress on alternative sustainability measures. This move illustrates a tension within the UK's sustainability drive between regulatory ambition and pragmatism.
Adding another layer to the financial urgency is a report from the Green Finance Institute, which warns that nature loss could reduce UK economic growth by 12% in the 2030s, equating to an economic cost of around £300 billion. The study suggests that nature-related risks, including antimicrobial resistance and soil degradation, may pose an even greater threat than climate change itself. This underscores why integrating nature considerations into transition finance is not just complementary but essential for economic resilience.
Political dynamics also influence the UK’s green finance agenda. The appointment of Alok Sharma as chair of the UK Transition Finance Council reflects efforts to consolidate leadership and boost the country’s position as a global hub for net-zero financial products and services. Sharma’s experience in international climate diplomacy is expected to reinforce the UK's strategy amid complex geopolitical challenges.
Despite these measures, a recent survey of financial services firms shows significant frustration with policy inertia. Many investors have either relocated or plan to move investments to friendlier jurisdictions due to a lack of clear government policy support for the low-carbon transition. UKSIF highlighted that policies such as the transition finance framework and climate reporting standards are lagging, putting billions of pounds in potential investment at risk. Firms overwhelmingly indicated that enhanced policy clarity and integration of biodiversity considerations would unlock substantial new investments.
Looking ahead, the UK government has signalled ambitious plans to bolster sustainable finance, aiming to foster a scale of clean energy investment that matches the challenge of climate change. Energy Secretary Ed Miliband outlined initiatives to support financial institutions and large companies in developing climate transition plans, seeking to make the UK the "sustainable finance capital of the world." The government’s industrial strategy targets rapid sector growth and increasing private investment, building on recent announcements of over £40 billion in clean energy investments.
The transition to a green economy, as panelists emphasized, must be pursued with “certainty, clarity, and continuity.” Without steadfast, clear government backing and regulatory consistency, the UK risks losing ground in the global race for green capital, undermining both economic growth and climate ambitions. With initiatives underway and substantial capital poised for investment, the challenge remains to convert potential into tangible progress on the ground.