BBB is exploring the potential use of its existing products including guarantees to catalyse lending and investment into critical transition themes such as retrofit and energy efficiency, and electric vehicle adoption. Given the importance of place-based finance, the BBB will also explore green investment issues including in the new Nations and Regions Investment Funds, which will support economic growth by leveraging private sector investment across a broad range of sectors and incorporating net zero BBB also works with the small business and finance market ecosystems to tackle information capacity gaps and raise awareness of potential

solutions. For instance, through the 2022 Green to Grow campaign[footnote 125], the BBB provided information to small businesses from a wide range of sources on the benefits of sustainability, explaining how finance can help and providing case studies that highlight good practices and champions. [footnote 126] The BBB is also working with Bankers for Net Zero on solutions to make GHG emissions reporting frictionless for small companies. Case Teesside-based Nova Pangaea’s patented process converts woody and agricultural residues into high-value sustainable products that will be used to produce sustainable aviation fuel for British Airways. Successive funding rounds from the British Business Bank’s Northern Powerhouse Investment Fund and grant funding support from the Department for Transport have enabled Nova Pangaea to build a demonstration plant and prove the capability of its process. [footnote 127] Growing green government and public levers to help sectors 39. Sectors and technologies moving towards commercial maturity must attract further investment to scale up capacity, remain cost and price competitive, and maintain resilient supply chains in the face of increasing global demand for inputs. The right policy frameworks, market arrangements and signals can act as a catalyst for more investment. Giving clarity around public funding and incentives in the short-term, with appropriate market frameworks and policy direction in the long-term, helps increase private sector confidence and reduce financing costs for green investment projects. 40. The UK government deploys grant funding to reduce upfront costs for large investments in infrastructure or manufacturing in the short-term. a. The £1 billion CCUS Infrastructure Fund (CIF) to help reduce the capital costs borne by private investors in strategic CCUS infrastructure, transport and storage networks, and industrial carbon capture (ICC) projects (see Fuel Supply and Hydrogen chapter of the Net Zero Growth b. The £240 million Net Zero Hydrogen Fund (NZHF) to support the development and construction of new low carbon hydrogen production plants that can deploy in the 2020s, including both CCUS-enabled and electrolytic hydrogen. The first competition window for Strands 1 and 2 of the NZHF ran from April to July 2022, aimed at projects which require development or capital costs without revenue support, and successful applicants have been announced alongside this Strategy (see Fuel Supply and Hydrogen chapter of the ‘Net Zero Growth Plan’);[footnote 129]

c. The £30 million Heat Pump Investment Accelerator Competition to drive investment in domestic manufacturing of heat pumps (see Heat and Buildings chapter of the Net Zero Growth Plan);[footnote 130] d. The up to £160 million Floating Offshore Wind Manufacturing Investment Scheme[footnote 131] to kick start investment in port infrastructure projects needed to deliver our floating offshore wind ambitions, and the Offshore Wind Manufacturing Investment Scheme[footnote 132] which supported major port infrastructure and manufacturing investment (see Power chapter of the ‘Net Zero Growth e. The Automotive Transformation Fund has been developed to support the creation of an internationally competitive, electric vehicle f. The £165 million Advanced Fuels Fund to support the development of commercial scale sustainable aviation fuel (SAF) plants in the UK (see Transport chapter of ‘Powering Up Britain - Energy Security’ and ‘Net Zero Growth Plans’). [footnote 133] 41. We also enable consumers to access smaller increments of funding to reduce burden on them and help them purchase low carbon goods, which creates a positive demand signal and encourages investment. A key example of this is the new Energy Company Obligation scheme – the Great British Insulation Scheme – which will deliver £1 billion additional investment by March 2026 in energy efficiency upgrades, such as loft and Box 21: Using different levers to drive investment in energy efficiency and low carbon heating across homes, businesses and Improving energy efficiency by reducing the amount of energy that households and businesses need is a crucial element in the UK government’s approach to meeting its net zero targets, as well as a key part of the response to high energy prices. We are investing over £6.6 billion this parliament towards improving energy efficiency and low carbon heating, and will be investing a further £6 billion over 2025 to Whether the challenge is retrofitting the UK’s housing stock, decarbonising its businesses, or developing retrofit programmes for public sector buildings, such as schools, colleges and hospitals, the provision of finance and supporting development of the right supply chains are essential. As set out in Heat & Buildings chapter of the Net Zero Growth Plan, some of the recent steps have taken Establishing the Energy Efficiency Taskforce to support the reduction of the UK’s final energy consumption from buildings and

industry by 15% by 2030 against 2021 levels. [footnote 134] The Boiler Upgrade Scheme (BUS) is providing £450 million between 2022 to 2025, and we have announced this will now be extended to at least 2028. The scheme has led to a number of offers, from both energy suppliers and financial lenders, that utilise B U S funding to reduce and spread the upfront cost, supporting the expansion of the low carbon heat market, scaling up manufacturing and upskilling installers. [footnote 135] The £1.425 billion Phase 3 of the Public Sector Decarbonisation Scheme will provide grant funding over the financial years 2022/23 - 2024/25. Phases 1 and 2 provided more than £1 billion in grants over the financial years 2020/21 and 2021/22. [footnote 136] The up to £20 million Green Home Finance Accelerator to support the development of innovative green finance products that help homeowners with upfront costs of energy improvements.
We expect to fund up to 27 successful projects, supported by around £4 million of initial grant funding for a 6-month Discovery Phase. [footnote 137] 42. Our medium-term approach is to design sectoral market support ‘business models’. Business models are tailored to the needs and circumstances of sectors, and support mechanisms are designed in consultation with industry so that we can reduce risk and provide long-term clarity. This is particularly helpful for sectors that face significant uncertainty around future prices and costs. Key examples a. The Contracts for Difference (CfD) renewable support scheme, which has been highly effective in mobilising investment in renewables in the UK and driving down cost since it was launched in 2014. [footnote 138] CfDs incentivise investment by providing revenue stability while protecting consumers from rising costs. The last CfD round, Allocation Round 4 in July 2022, was our largest ever, supporting an expanded number of renewable technologies and securing almost 11GW of low carbon capacity. [footnote 139] (See Power chapter of the ‘Net Zero Growth Plan’ and chapter 4 of ‘Powering Up Britain - Energy Security Plan’.) b. The Regulated Asset Base (RAB) funding model for future nuclear projects[footnote 140] introduced in 2022. RAB models have been successfully used for many years to finance large, long-term single- asset infrastructure projects in the UK. In November 2022, the UK government confirmed an investment of £700 million in the Sizewell C project. [footnote 141] This represents one of our biggest steps yet in our journey to energy independence. (See Power chapter of the ‘Net Zero Growth Plan’ and chapter 4 of ‘Powering Up Britain - Energy Security c. The Hydrogen Production Business Model (HPBM) will provide revenue support to hydrogen producers to overcome the operating cost

gap between low carbon hydrogen and high carbon fuels. In December 2022 we set out the model design in the HPBM Heads of Terms which will form the basis of the Low Carbon Hydrogen Agreement (LCHA) signed with hydrogen producers. [footnote 142] Alongside this Strategy, we have published the shortlist of projects for the UK’s first electrolytic hydrogen allocation round (HAR1)[footnote 143] to take forward to due diligence, and re-confirmed our aim to award contracts totalling up to 250MW capacity through this round. Successful projects in this round will be funded by government until the hydrogen levy is in place. In August 2022, we also published a consultation on Hydrogen Transport and Storage Business Models, as part of our commitment to design these by 2025. [footnote 144] We are aiming to introduce legislative powers, when parliamentary time allows, which will be crucial to designing these new business models by 2025. (See Fuel Supply and Hydrogen chapter of the ‘Net Zero Growth Plan’ and chapter 4 of ‘Powering Up Britain - d. A suite of CCUS business models[footnote 145] are being developed, tailored to different parts of the CCUS sector. (See Fuel Supply and Hydrogen chapter of the ‘Net Zero Growth Plan’ and chapter 4 of the ‘Energy Security Plan’.) These i. the transport and storage (‘T&S’) business model to establish the commercial arrangements that will fund transport and storage infrastructure and enable CCUS clusters; ii. the industrial carbon capture (ICC) and waste ICC business models to provide ongoing revenue support for industrial and waste management emitters to decarbonise; iii. the Dispatchable Power Agreement (DPA) contractual framework for power CCUS, published in November 2022; and iv. the power bioenergy with CCS (power BECCS) business model, consulted on in August 2022 with our response published e. We consulted on the design of engineered Greenhouse Gas Removals (GGR) Business Models in July 2022. [footnote 146] The consultation also explored options for building a negative greenhouse gas emissions market in the UK and key considerations in relation to the monitoring, reporting and verification of engineered GGRs. We intend to respond and set out the next steps this year. (See Greenhouse Gas Removals chapter of the ‘Net Zero Growth Plan’.) 43. As part of the British Energy Security Strategy, we announced the Review of Electricity Market Arrangements (REMA) programme. It is exploring enduring reforms to our electricity (non-retail) market arrangements to ensure that they remain fit both for today and future generations. We aim to publish a second REMA consultation in Autumn 2023 and will take decisions on shorter-term reforms more quickly where it is viable to do so throughout the REMA programme (see chapter 5 of the

44. We also deploy regulation to set standards, create demand and supply signals, and create new market frameworks. These also act as signals for investors to identify investible opportunities across sectors. Key examples a. The Zero Emission Vehicle (ZEV) mandate[footnote 147] planned from 2024 will support delivery of the phase out of the sale of new petrol and diesel cars and vans from 2030, and ensure that all new cars and vans are zero emissions at the tailpipe from 2035. This is driving adoption and deployment of zero emission vehicles, as well as investment in their manufacturing, supply chains and enabling infrastructure. (See Transport chapter of the ‘Net Zero Growth Plan’.) b. The Sustainable Aviation Fuel (SAF) mandate starting in 2025 with a target of at least 10% SAF in the UK aviation fuel mix by 2030. This aims to reduce GHG emissions from aviation by generating demand for SAF and providing an incentive to SAF producers in the form of tradeable certificates. It also sends a long-term signal to investors on the vital role the government believes the technology will play in the UK. In March 2023, we launched a second consultation on the mandate’s design. We commissioned an independent review to help understand the conditions needed to create a sustainable long-term UK SAF industry in October 2022. We will very shortly respond to its findings, and will work with industry on options to increase revenue certainty for UK SAF plants and options to stabilise the UK market for feedstocks. (See Transport chapter of the ‘Net Zero Growth Plan’.)
c. The Low Carbon Hydrogen Standard sets a maximum GHG emissions threshold for hydrogen production processes to be considered ‘low carbon hydrogen’, and a methodology for calculating GHG emissions. [footnote 148] Compliance with the standard will help ensure new low carbon hydrogen production supported by government makes a direct contribution to our carbon reduction targets. (See Fuel Supply & Hydrogen chapter of the Net Zero Growth Plan.) d. Mandatory Biodiversity Net Gain, which we legislated to introduce in the Environment Act 2021, will establish a market for biodiversity units from November 2023. [footnote 149] Land managers who can create or enhance habitat on their land will be able to sell the resulting biodiversity units to developers needing to meet their obligations. (See Goal 1 ‘Thriving plants and wildlife’ and Goal 6 ‘Using resources from nature sustainably’ of the ‘Environmental Improvement Plan’.) 45. We have committed to publish a Land Use Framework for England in 2023, which will help to inform how we manage trade-offs between different land uses as we deliver our ambitious climate and environmental goals, and provide greater clarity to the market. (See Goal 6 ‘Using resources from nature sustainably’ and Goal 7 ‘Mitigating and adapting to climate change’ of the ‘Environmental Improvement Plan’.) 46. Innovations in public financing mechanisms have the potential to improve the capacity to crowd in private investment more effectively. A key example of this is the use of blended finance structures which can support projects to secure the investment they need, whilst providing value for 47. ‘Blended finance’ is a catch-all term that covers financial products or structures that combine different funding sources aimed at lowering the risk profile of specific companies or projects and ultimately attracting private 48. Examples include public sector provision of concessional guarantees, first loss tranches of debt structures, performance wraps (insurance), and subordinated debt. All are examples of a creative use of traditional grant funding, that can be customised to the involved parties’ priorities and risk appetites, and can target a particular sector, project type or context. Box 22: Blended finance case studies focusing on nature markets The UK government is investing £30 million Big Nature Impact Fund (BNIF), a new blended finance impact fund managed by Federated Hermes and Finance Earth. [footnote 150] Our catalytic investment will crowd in significant levels of private capital, with the aim of developing a track record for private sector investment in nature recovery at scale, BNIF will accelerate the creation across England of high-integrity nature projects that generate revenue from ecosystem services such as carbon sequestration, biodiversity and water quality, by creating biodiverse woodlands and other priority habitats, and restoring peatlands. By taking a blended finance approach and aggregating these projects up to an investible level, BNIF will help lower transaction costs and reduce risks, bringing the risk profile of these projects in line with institutional The £50 million Woodland Carbon Guarantee helps accelerate woodland planting rates and develop the domestic market for woodland carbon, by offering a price guarantee for verified carbon credits sold to the UK government. [footnote 151] Our new Environmental Land Management schemes are being designed to dovetail with private investment. [footnote 152] In particular, we are supporting the bespoke Landscape Recovery projects to secure private funding alongside public funds in innovative ways. We have carried out numerous tests and trials looking at different mechanisms to crowd in private finance to improve nature’s recovery, and we will

continue to learn from these and other projects as private markets for 49. Over the past decade the UK has developed significant international experience developing blended finance instruments, including support for the Global Innovation Lab for Climate Finance.153 Many public finance institutions, public funds and initiatives also already include a mix of blended of options including significant (£10 billion) capacity to provide guarantees, and the British Business Bank oversees products that use grants and guarantees to crowd in private sector lending. UK Export Finance also works closely with a wide range of private credit insurers and lenders to help UK companies access export finance, complementing the provision of support from the private market. 50. To build on a strong track record of existing blended finance structures and interventions, the UK government is committed to exploring additional areas where such structures could have impact. We will work with the Green Finance Institute and industry leaders in the finance sector to develop a forward-looking analysis of blended finance models and where they could 51. In addition, both our call for evidence and the independent ‘Net Zero Review’ highlighted concerns that the broad range of government funding schemes that are available for businesses and project developers can at times create undue complexity and do not always suit the specific needs of the relevant sector. The UK government recognises the importance of ensuring the design of funding schemes is as impactful and effective as possible, and delivers value for money. We will explore the design of funding schemes for net zero projects ahead of the next Spending Review. Green infrastructure projects across common barriers and 52. Much of the green investment required at the stage of commercial maturity is investment in infrastructure. Based on industry feedback we understand that there are significant pools of private finance ready to deploy into green infrastructure projects but there can be a mismatch between market appetite and the risk profile of green projects. The UK Infrastructure Bank has an important role to play in crowding private investment into these. Box 23: UK Infrastructure Bank UKIB published a Strategic Plan in Summer 2022, which sets out how it will deliver on its mission across its 5 priority clean energy; digital; transport; water; and, waste. [footnote 154] Projects which UKIB invests in must meet its triple bottom achieving one or both of its

strategic objectives (tackling climate change and promoting economic growth across the UK), generating a positive financial return and demonstrating additionality.
It will focus where there’s an undersupply of private finance and reducing barriers to investment – thereby crowding- UKIB has an initial £22 billion of financial capacity which it aims to deploy over the next 5 to 8 years, subject to the pipeline of investable projects. It can provide corporate and project finance and invest across the capital structure, including senior debt, mezzanine, guarantees and equity. Where possible, UKIB will invest on terms in line with other sources of finance. However, it can go further, taking on risks that other investors are unwilling – or not yet willing – to take; and offering concessional terms, including on price and tenor, where that is UKIB will finance early-stage technologies commercially deploying for the first time; proven technologies to accelerate their deployment toward government ambitions; and, mature technologies transitioning to subsidy-free models. It will also invest in the natural capital market, creating pathways for future private investment by demonstrating the soundness and replicability of emerging business models, including approaches that aggregate projects. UKIB is now operational and, as of 27 March 2023, has announced 12 deals, investing approximately £1.2 billion and unlocking over £5 billion of private capital. Projects that contribute towards meeting net zero committing £162.5 million as a cornerstone investor in Next Power UK ESG fund, the UK’s largest subsidy-free solar fund investing £150 million, alongside £1 billion from other investors, in the UK portion of finance for the 1.4GW NeuConnect interconnector providing £10 million to the West Midlands Combined Authority, supporting the introduction of green buses in Birmingham Case study – Electricity UKIB has announced, alongside this Strategy, that following an expressions of interest process it will appoint managers for equity funds covering both short and long duration electricity storage. UKIB will invest on a matched basis, crowding-in wider sources of finance. Going forward, UKIB expect to make direct investments in the electricity storage sector, which was identified as an investment opportunity in their Strategic Plan. 53. Heat Networks are an example of an infrastructure investment which will require significant private sector finance to help deliver decarbonised heating. Heat network regulation will come into force in 2024 and Heat Network Zoning in England will come into force by 2025 to support long- term strategic investment into heat networks. We are continuing to grow and decarbonise the UK heat network market through the Green Heat Network Fund (GHNF) and can confirm that capital support will be extended to 2028, including £220 million to facilitate the continued growth of low carbon heat networks over 2025/6 and 2026/7. Local authorities applying to the UK government’s GHNF for funding can now also access loans from the UK Infrastructure Bank at preferential rates. [footnote 155] 54. Central to delivery of net zero infrastructure at scale is an efficient planning system. It can currently take many years to get a major project through the planning system, and as volumes and complexity increases, the system is increasingly facing delays and challenges. We published our action plan in February 2023 to improve the Nationally Significant Infrastructure Project planning process. [footnote 156] This important document contains a raft of reforms across the entire system to make it stronger, fairer and faster. We are now also publishing 5 revised energy National Policy Statements covering Renewables, Oil and Gas Pipelines, Electricity Networks and Gas Generation, and an overarching Energy Statement for consultation. This includes a new requirement for offshore wind to be considered as ‘critical national infrastructure’. (See chapter 4 of ‘Powering Up Britain - Energy Security’.) 55. We are also taking steps to increase the use of nature-based solutions within infrastructure and development in England. The UK government has set an expectation of a significant increase in the use of nature and catchment-based solutions in the water sector, with companies and regulators working towards delivering these solutions as a matter of preference. As well as mandating Biodiversity Net Gain for developers and Nationally Significant Infrastructure Projects, we are aiming to make Sustainable Drainage Systems (SuDS) mandatory in new housing developments in 2024, subject to final decisions on scope, thresholds and process following consultation. Established supporting the transition to a net zero, resilient 56. As green sectors innovate and grow, it is also crucial that established, high carbon sectors invest to shift towards greener practices. The UK government’s levers and support can help increase the rate of adoption of greener practices, particularly when they are not yet fully cost- or price- competitive with established practices. 57. A major lever to incentivise uptake of low carbon practices is carbon pricing. The UK Emissions Trading Scheme (UK ETS) incentivises the reduction of emissions in a cost-effective way. [footnote 157] A cap is set on the

total amount of certain greenhouse gases that can be emitted by the sectors covered by the scheme over a given period. This incentivises industries to lower their emissions impact and increases the uptake of green technologies, creating positive demand signals that mobilise investment. The UK government will work with the rest of UK ETS Authority[footnote 158] to legislate to continue the ETS beyond 2030, until at least 2050. The ETS will remain aligned with our net zero goals, so giving the private sector the certainty they need to invest in decarbonisation. We will explore expanding the scheme to more sectors of the economy, including high emitting sectors. The UK ETS Authority will shortly publish a government response to our consultation on initial expansion of the UK ETS’s scope to cover energy from waste/waste incineration and domestic maritime emissions. 58. We are providing specific incentives for industrial sectors to switch fuel and energy sources, from fossil fuels to electricity and hydrogen, as well as bioenergy, and to support industrial resource efficiency and energy efficiency. (See Industry chapter of the ‘Net Zero Growth Plan’.) We do this through several levers, such a.
The Industrial Energy Transformation Fund (IETF), which provides grant funding to supporting industry to cut their energy bills and carbon emissions through investing in energy efficiency and low carbon technologies. We are announcing an extension to the I E T F, increasing total grant funding available by £185 million. Subject to business case approval, we intend to open Phase 3 of the I E T F for new applications b. The hydrogen production and CCUS business models (see fuller description in ‘Growing green sectors’ section above), which will support CCUS and help make hydrogen a cost competitive option compared to alternative fossil fuels, incentivising their uptake; and c. The Climate Change Agreements scheme, which we are extending by 2 years, and provides reduced Climate Change Levy rates for eligible businesses in over 50 industrial sectors worth an estimated £300 million a year. We are also publishing a consultation on the detail of the extension and views on a potential future Climate Change Agreements 59. We recognise that UK industrial electricity prices are higher than those of other countries, which may be a barrier to investment. We have committed to address this to ensure UK industry remains competitive. We have taken several steps to reduce the cost of electricity for the UK industrial sector, and energy intensive industries in particular, a. The British Industry Supercharger, with targeted measures to bring the energy costs for key UK industries in line with other major economies, benefitting 300 businesses across the UK; b. The Energy Intensive Industries (EII) Compensation Scheme, extended until March 2025, helps high energy usage businesses such as steel and paper manufacturers with their electricity costs;

c. A commitment to outline a clear approach to gas vs electricity ‘rebalancing’ by the end of 2023/4, aiming to make significant progress affecting relative prices by the end of 2024. Rebalancing will generate the clear short-term price signal necessary to shift businesses to lower carbon, more energy efficient technologies like heat pumps. This is vital to meet government’s existing decarbonisation commitments, including our goal of 600,000 heat pumps installed per year by 2028. 60. Investment in the circular economy and resource efficiency can also contribute to energy demand reduction targets, whilst increasing the resilience of UK industrial supply chains. This requires the adoption of new, sustainable business models and growth in the UK’s capacity to reuse, remanufacture and recycle products and materials. In the Resources and Waste Strategy (2018) and Net Zero Strategy (2021), the UK government has set out plans to support the development of the circular economy. The UK is well placed to capture the opportunity from this transformation. To support the transition and to help drive investment, UKRI has initiated programmes including the National Interdisciplinary Circular Economy Research (NICER), which is bringing together researchers, businesses, policymakers, and wider society to identify, develop and embed circular economy approaches and technologies across key industrial sectors. 61. We are working with the oil and gas industry and regulators to decarbonise oil and gas production in the North Sea, primarily through electrification of infrastructure and cessation of routine flaring (see Fuel Supply and Hydrogen chapter in the ‘Net Zero Growth Plan’). Through the North Sea Transition Deal, the industry is committed to reducing its emissions by 10% by 2025, 25% by 2027 and 50% by 2030 (against a 2018 baseline). [footnote 159] The North Sea Transition Deal will support workers, businesses, and the supply chain through this transition by harnessing the industry’s existing capabilities, infrastructure and private investment potential to exploit new and emerging technologies such as hydrogen production, CCUS and floating offshore wind. 62. Government wants to encourage oil and gas companies to reinvest their profits in oil and gas extraction from the UK to support the economy, jobs and the UK’s energy security. The Energy Profits Levy on extraordinary oil and gas profits was increased to 35% in the Autumn Statement, but in recognition of the need to continue investing in UK energy security and decarbonisation, it comes with an investment allowance for the reinvestment of profits in ring-fenced activities and a separate investment allowance for investment in carbon emissions reducing technology, such as installing bespoke wind turbines to power upstream production assets. 63. The Energy Profits Levy is accompanied by the temporary Electricity Generator Levy, introduced by government on extraordinary returns in the market due to electricity prices far exceeding historical levels, as a result of Putin’s illegal invasion of Ukraine and weaponisation of gas supplies. This will ensure that energy companies contribute to the UK’s collective efforts to strengthen public finances, and fund cost of living support and public

services. We will keep the investment landscape for renewables under review to ensure we can deliver the capacity needed to decarbonise the 64. We are also committed to ensuring that efforts to shift UK industry towards greener practices are not undermined by carbon leakage; that is, the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation. Alongside this Strategy, the government has published a consultation on a range of domestic policies to protect against carbon leakage and ensure UK industry has the optimal policy environment to decarbonise. These include a carbon border adjustment mechanism (CBAM) and mandatory product standards (MPS) and the embodied emissions data required to introduce those policies. (See Industry chapter of Across the maturity enabling and stimulating investment into 65. The Climate Change Committee published its ‘Investment for a well- adapted UK’ report in February 2023 highlighting the need to mobilise a range of funding sources to support adaptation investment[footnote 160]. The report highlights a range of market barriers holding back new investment, limitations on climate risk information; lack of bankability of climate adaptation projects; and policy, regulatory and behavioural barriers. One of the biggest barriers to adaptation finance is being able to monetise the benefits of adaptation action to repay private investment.
We are running 2 projects seeking to address this a. Monetising insurance benefits from flood Insurance is a major part of the financial response to climate risk, but its viability and affordability is threatened where risks become very high. We will explore opportunities for new financing mechanisms for facilitating insurance markets to build flood resilience, where that will reduce overall costs.
b. Coastal Loss Innovative Funding and Financing (CLIFF): A study exploring the development of innovative financing mechanisms to support residents in properties impacted by sea level rise, either through incentives to relocate from high-risk areas or by providing financial 3.2.3 Supporting local areas to unlock green investment opportunities 66. Local authorities play an essential role to unlock the investment opportunities that support the UK’s net zero, resilience and nature objectives, whilst also supporting local economic around 80% of all the UK’s GHG emissions are potentially within scope or influence of local authorities and they have key responsibilities around planning, transport and waste management[footnote 161]. 67. Local authorities also have a local leadership and convening role, which means they can work closely with businesses and investors to encourage investment that would not otherwise be obtained, and making it easier for place-based investment models to be developed. The UK government is working to increase the volume of private sector investment activity in local green projects in the UK and support local authorities to facilitate the generation and promotion of new investment opportunities. This means building capacity for local authorities to attract green investment for opportunities associated with places in the UK. Building the capacity of local actors to attract green investment 68. Local authorities and other local organisations can often face a lack of resources and skills needed to develop commercially viable investment propositions for investors. The UK government is funding work to address this through Local Net Zero Hubs, which support local authorities to develop net zero projects that can attract commercial investment and through the Net Zero Go platform launched in 2022, an online resource that supports local authorities in developing projects through the sharing of knowledge and best practice. [footnote 162] Going forward we will continue to strengthen support to local authorities to help them attract private sector investment and share expertise. The UK government and its Local Net Zero Hubs will work with UKIB and GFI to provide expertise to local authorities in identifying, developing and framing commercially attractive investments. (See Local Net Zero chapter in the ‘Net Zero Growth Plan’.) 69. The UK government is also providing 4 local authority areas with up to £1 million each to act as trailblazers through our Local Investment in Natural Capital (LINC) Programme. These local authorities will use the funding to build their capacity to attract private investment at scale, direct it towards their local environmental priorities (including those identified and mapped through Local Nature Recovery Strategies), as part of their plans for economic growth, and share learning with other local authorities. The selected authorities are Cornwall Council, Northumberland County Council (on behalf of the Borderlands Inclusive Growth Deal area), West Midlands Combined Authority and York and North Yorkshire. Box 24: Working with other public institutions and bodies to support capacity building in local places The UK Infrastructure Bank (UKIB) local authority advisory function’s first phase pilots have focused on 3 key areas at the heart of the net zero and local growth the electrification of buses; mass transit; and, place-based, low-carbon energy infrastructure. The function is building to a steady state through 2023, offering support to The Local Government Association has released an updated version of their guide to green finance for local authorities. The National Parks Partnership (NPP) and National Association for Areas of Outstanding Natural Beauty (NAAONB) to support capacity building of Protected Landscape bodies and increase pipelines of projects for private investment. National Parks and Areas of Outstanding Natural Beauty (AONBs) cover nearly 25% of land in England and are critical to attracting investment into natural capital in a way that protects habitats for nature while enabling access for We are working with the Ecosystems Knowledge Network and Green Finance Institute (GFI) to publicise and share cases studies and learning from the Natural Environment Investment Readiness Fund (NEIRF). The Green Finance Institute has drawn on the learnings from NEIRF projects to develop an Investment Readiness Toolkit, that provides an online framework to support the development of nature-based projects and improving their investment readiness. We will consider options for continuing our investment readiness support for nature projects beyond the current iteration of the NEIRF, drawing on the results of an independent evaluation of the Innovate UK’s £60 million place-based net zero programme Net Zero Living is designed to ensure UK places and communities thrive as part of the transition. It will address key non-technical barriers to the adoption and deployment of locally-appropriate solutions across the UK, such as finance, helping innovative businesses to prosper and Government and public sector levers to mobilise private sector 70. The UK government and other public institutions haves launched a range of schemes that use public funding and finance to mobilise private sector investment in local places. Through these levers we will continue to support local authorities to support the scaling and deployment of key sectors and technologies for our net zero, nature, and resilience a. As announced in the Budget, new Investment Zones will drive local economic growth. Green business sectors are one of the 5 priority sectors for the Investment Zones and all Investment Zones are also required to demonstrate their contribution to national net zero and b. Building on the LEVI Pilot and initial capability funding, the Local Electric Vehicle Infrastructure (LEVI) fund supports electric vehicle (EV) charging infrastructure proposals led by local authorities (see Transport chapter of the Net Zero Growth Plan). The LEVI Fund is providing a further £343 million capital and £37.8 million resource funding to support local authorities to work with industry and transform

the availability of charging infrastructure for drivers without off-street parking. This will enable strategic and best practice local provision of c. UKIB plays an important role in catalysing local government support for the net zero transition. UKIB’s local authority function will lend up to £4 billion to local authorities at a preferential rate (gilts + 60bps) for high value and strategic projects of at least £5 million.
Developing new approaches to local green finance 71. We also recognise that there is an opportunity to support innovations in place-based investment models which can support local authorities to attract investment. These can build on the learnings of ‘blended finance’ models (see section 3.2.2). The UK government and other public institutions are supporting several initiatives to promote this at a local a. The UK government has funded a 3Ci project to develop a business model for increasing private-sector investment in local net zero b. The Impact Investing Institute is working with Wakefield Council on a place-based impact investing pilot, to support the Council to develop a project pipeline of local investment opportunities and support engagement with potential investors. c. The exploration of Smart Local Energy Systems (SLES) as part of the UKRI’s Prospering from the Energy Revolution programme aims to bring together different energy assets and infrastructure, making them operate in a smarter way, to help local places reduce carbon emissions more quickly and more cost effectively. d. As part of the Prime Minister’s Business Council convened in 2022, Lloyds Banking Group, Octopus Energy, Shell and National Grid launched a Local Low Carbon Accelerator partnership to provide a blueprint for local authorities and the private sector to work together and deliver green infrastructure. UKIB have supported its projects, providing expert advice throughout the process. 72. The UK government will continue to support new and innovative approaches to local green finance, including opportunities for blended finance in place-based approaches. Work is underway through the Local Net Zero Forum to develop models for how place-based approaches to net zero can work, and how blending public and private sector finance can contribute to these, which will inform our policy and programme 73. Councils have in recent years started issuing Community Municipal Investments through the Abundance platform, allowing communities to invest in net zero projects in their area. This complements opportunities for local authorities to benefit from UKIB’s dedicated lending offer for net zero projects as well as to borrow from markets through Green and Sustainable Bonds. This represents a potentially important new source of funding for

local projects and the UK government is exploring ways to support the growth of the Municipal Green Bond market. 74. We also recognise the continued importance of local authorities in incorporating climate adaptation and resilience considerations as a priority within local delivery of green investment. This includes considering resilience within local net zero ambitions and climate mitigation projects, as well as natural capital projects. 3.2.4 Maintaining an attractive business and investment environment the joint most generous capital allowance regime in the OECD covering capital allowances as well as generous R&D and patent tax reliefs. This includes a policy of full expensing from 1 April 2023, which will provide continuity of tax relief for businesses. Following our exit from the European Union we also have the UK-EU Trade Cooperation Agreement, which allows zero tariff market access with the EU, while further UK Free Trade Agreements are turbocharging exports to the rest of the world (currently 70 76. In addition, we announced that from April 2023 the rate of the Research & Development Expenditure Credit (RDEC) will be increased from 13% to 20%. This means that the UK’s R&D tax relief for large companies has the joint highest uncapped headline rate in the G7. [footnote 163] Further, from April 2023, a higher rate of relief for loss-making R&D intensive SMEs will be introduced. Eligible companies will receive £27 from HMRC for every £100 77. The UK also provides a series of location-based incentives to stimulate trade, investment, innovation and job creation in Freeports across the country – that is in areas near shipping ports or airports. [footnote 164] Our Freeports model includes a comprehensive package of measures, comprising tax reliefs, customs, business rates retention, planning, regeneration, innovation and trade and investment support. These are essential levers to secure investment in key infrastructure needed for our net zero, resilience and nature objectives. The UK has announced the creation of 8 Freeports in England in East Midlands, Felixstowe and Harwich, the Humber, Liverpool City Region, Plymouth and South Devon, Solent, Teesside and the Thames, 2 Green Freeports in Scotland in Firth of Forth Green and Inverness and Cromarty Firth, and 2 in Wales in Anglesey, and Port Talbot and Milford Haven. 1st in Europe for value of start-up & scale-up ecosystem 1bn funding for Net Zero Innovation Portfolio 1st in G20 as a globally connected economy 1st ranked best global green finance centre 2nd in Europe for FDI attractiveness Stable regulatory regime with independent legal system Globally competitive and transparent tax regime Generous R&D and patent tax relief The UK-EU Trade and Cooperation Agreement allows zero tariff World class professional services sector supporting businesses with Financing to build export capability

78. The transition to a greener, more resilient economy has the potential to create significant export opportunities for the UK, which is both a growth opportunity and supports the global transition to a net zero, resilient and nature positive economy. Attracting the investment needed to accelerate the deployment and build the supply chains of low carbon technologies has the potential to anchor these industries in the UK, boosting export capability. Exports can enhance the growth potential of UK businesses, making them 79. Exports within low carbon and renewable energy industries are growing significantly faster than exports from the broader economy. In 2021, it is estimated exports from these sectors increased by 67% from 2020, compared to total exports which increased by 6%. [footnote 165] Currently, our exports are strongest within more established green sectors, such as low emission vehicles and offshore wind, but driving investment into and growing emerging sectors could unlock significant opportunities. For example, exports from CCUS could be worth an estimated £4.3 billion in 80. The UK government has ambitious goals for boosting exports, which are supported by UK Export Finance (UKEF).
UKEF is an important enabler for mobilising private investment for the net zero transition by de-risking projects and finance, and helping green economy exporters seize export opportunities and attract investment. UKEF’s mission is to advance prosperity by ensuring no viable UK export fails for lack of finance and insurance, doing that sustainably and at no net cost to the taxpayer. Alongside this Strategy the Chancellor has announced an increase in UKEF’s capacity from £50 billion to £60 billion to support UK exporters and supply chains, and UKEF is committed to increasing its support in clean growth and climate adaptation. In 2021 to 2022, the economic impact of UKEF support was up to £4.3 billion of UK Gross Value Added (GVA) and an estimated up to 72,000 UK jobs - 40,000 directly employed by exporters and a further 32,000 jobs supported indirectly through the UK supply chain[footnote In 2021, UKEF published its Climate Change Strategy for 2021 to 2024 in which it committed to net zero greenhouse gas emissions by 2050 across its portfolio and operations, and providing international leadership on climate change amongst export credit agencies and relevant financial institutions. [footnote 168] UKEF has a range of products to deliver its support to companies of all sizes across the UK, helping them to access finance for their exports of goods, services and intangibles to markets around the globe. In

addition, it provides overseas partners with access to finance for projects where they commit to sourcing goods and services from the UK. UKEF is using a range of levers to support UK export potential and UKEF has put in place a £2 billion clean growth direct lending facility dedicated to financing clean growth projects overseas that UKEF has a domestic product range to help UK exporters and investors realise the opportunities of green trade. Its Export Development Guarantee (EDG) helps companies who export from, or plan to export from, the UK to access high value working capital loan facilities over £25 million, actively supporting investment into UK supply chains, enabling them to seize new global export opportunities and establishing UK suppliers in new net zero sectors and those where the UK does not currently have a dominant global export UKEF also offers transition finance to support UK companies that are actively working to transition their business away from fossil fuels. This includes a Transition Export Development Guarantee for companies that can demonstrate via a Climate Transition Plan that they are Paris-aligned and transitioning away from business activities in the overseas fossil fuel sector. UKEF has also supported a number of Sustainability-Linked Loans (SLLs) through its EDG product, including in the aviation, construction and manufacturing sectors. These loans provide favourable terms should a company meet pre- agreed sustainability targets which are ambitious and relevant to the borrower’s business (that is reducing emissions), encouraging their achievement of positive sustainability outcomes. 3.3 Working with the business and investment 3.3.1 Promoting investment opportunities 81. The UK government has an important role to play in supporting the private sector to identify investment opportunities. Stakeholder feedback has indicated that whilst there is available capital to be invested in green projects, more can be done to improve the visibility of projects that require investment and support all stages of the project development life cycle. We understand the importance of developing a positive feedback loop between government, businesses and investors about key investment opportunities, streamlining information flows and enhancing investor confidence. 82. The UK government works with the private sector to source and help promote exciting green projects and investment opportunities to interested investors. We do this by advertising investible propositions in locations across the UK, and by directly connecting investors to investment 83. We advertise and promote investment opportunities a. The Investment Atlas The Investment Atlas[footnote 169] is the UK government’s online catalogue of priority investment opportunities, from across investment types and covering the whole of the UK. The Atlas enables investors to find information quickly and access expertise. On the Investment Atlas, we have 41 green related specific investment opportunities across our High Potential Opportunities, Large Capital Investment Opportunities and Freeports. Additionally, we have 14 sector overviews with a green focus on the Atlas. From October 2021 to January 2023, the Investment Atlas had over 100,000 unique visitors and over 500,000 page views. b. Promoting UK green investment We build on this with direct engagement with the investment community, for example through events such as the Green Trade and Investment Expo, which was held on 1 November 2022 in Gateshead. This event brought together 200 British business leaders and global investors, showcasing investment and export opportunities presented by the UK’s net zero transition. In September this year the government will also host the Global Investment Summit 2023. This will build on the Global Investment Summit held in 2021, at which government announced nearly £10 billion of new foreign direct investments in the UK. [footnote 170] 84. The UK government can also help promote exciting green projects by connecting investment opportunities to interested investors a. Our Office for Investment provides a single front door to the UK government for high-value and high-impact domestic and international investors, facilitating and helping the UK to win green inward investments through a concierge offer. [footnote 171] The Office for Investment works closely with regional and national stakeholders to source investment opportunities across the UK, and promotes these with both sovereign and domestic institutional investors to drive increased investment in line with the government’s net zero agenda. b. Our Venture Capital Unit works to develop long-term relationships with global corporate and venture capital investors, attracting investment into UK companies. [footnote 172] The Unit promotes leading start-ups at showcase events, organises roundtables at UK Embassies and introduces pre-screened companies to known investors via sector

Over the past 7 years, the Venture Capital Unit has facilitated £5 billion of VC investment into UK start-ups.
Net Zero investment is a key focus for the Unit, and this year it is running its second Green Builders of Tomorrow competition, in conjunction with Octopus Investments. It is open to early-stage companies seeking to raise £5 million - £100 million during 2023, and targets investors in the UAE and across the Middle 3.3.2 Engaging the business and investment community 85. Beyond investment promotion, the right channels of communication and engagement between government, businesses and investors are needed to ensure that policies are effective, market barriers are addressed efficiently, and all parties can build their approach to the transition to a net zero economy in lockstep. Government is establishing a new partnership to work with business and finance leaders to support the delivery of our net zero target - a new Net Zero Business and Investment Group. 86. The group will look to develop a shared view of market barriers across different sectors to deliver net zero and the respective roles across government, industry and the finance sector in addressing these. It will also look at identifying the key policy support, information and advice businesses (including SMEs) require in their transition. The work of the group will be complimentary to that of other existing taskforces supported by government and a wide range of stakeholders will over time be invited to get involved in the work of the group as its focus evolves. The full composition of the Leadership Group and Secretariat for the group will be announced in the 87. This continues our commitment to working closely with the investment and business community, as has been exemplified by the Green Finance Institute (GFI). The GFI was launched in 2019 with seed funding by the UK government and aims to support the mainstreaming of green finance both in the UK and overseas. Its strategy has been to identify the barriers to investment in real economy decarbonization by sector and committing to develop the solutions to overcome them, and in doing so the Institute has become a valued partner for market participants and policy makers. Box 27: Green Finance Institute Since launching the GFI has carried out high profile and impactful work across a number of strategic areas. The GFI is now moving from start- up to scale-up, growing its sector pilots into market-wide financial solutions in the built environment and road transport. It will expand into new sectors, including sustainable aviation, carbon capture and storage, and harder to abate industrials. The GFI will also continue to help develop the market for investment into nature. Examples of recent and active projects Built Launching the Coalition for the Energy Efficiency of Buildings (CEEB) to support development of green financial products, developing Green Home Finance Principles which one third of the UK mortgage market has already committed to align with. Road Working with over 230 industry organisations to identify the challenges and opportunities for investors in electric vehicle (EV) charging infrastructure, consumer access, heavy goods vehicles and the battery supply chain. Supporting the Natural Environment Investment Readiness Fund (NEIRF) and the subsequent Facility for Investment Ready Nature in Scotland (FIRNS), advising and hosting the secretariat for the group and launching GFI Hive[footnote 173] , an online knowledge sharing platform on investment in nature. Local Leading research into barriers faced by local authorities to attract investment and co-leading the Local Climate Bond Campaign, supporting local authorities in raising municipal finance and supporting 6 issuances to date. Emerging Designing the Green Finance Guarantee Facility to overcome obstacles faced by financial institutions on the mitigation of real or perceived risk in emerging market climate infrastructure Greening financial Chairing and providing secretariat for the Green Technical Advisory Group, supporting development of the UK Green Taxonomy; providing secretariat for Integrity Council on 3.4 Unlocking high-integrity carbon and nature 88. The UK has been a pioneer in the use of market mechanisms to mobilise finance for climate and nature since 2002, when we established Europe’s first Emissions Trading Scheme (ETS). Today our goal is to make the UK ETS the world’s first net zero consistent cap and trade market. Internationally, we are a leading supporter of carbon pricing and market uptake in emerging markets and developing economies, having helped over 30 to put a price on their own emissions through carbon taxes, ETSs and offset mechanisms. As well helping to direct local finance towards cleaner development, this enhanced capacity can facilitate participation in

89. Demand is increasing from the private sector for high-integrity markets that allow organisations to purchase high quality credits for carbon and other ecosystems services. The UK government is committed to fostering growth in these markets in a way that is high-integrity, unlocks truly additional finance for net zero, and takes advantage of the synergies between carbon and other ecosystem services, such as biodiversity, water or flood mitigation, to unlock additional investment in nature. 3.4.1 Voluntary carbon markets 90. Voluntary carbon markets (VCMs) enable carbon credits to be purchased, usually by organisations, for use against voluntary climate commitments, as opposed to legally binding emissions reduction obligations. VCMs have grown rapidly in recent years from around $300 million in 2019 to $2 billion in 2021[footnote 174], fuelled by an increase in net zero commitments made by non-state actors. Further progress was made at COP26, including through agreement on the framework and rules for international carbon trading under Article 6 of the Paris Agreement. 91. Financial institutions and other stakeholders have highlighted a number of challenges that could prevent V C Ms from reaching their potential. These include the need for clarity on what constitutes a good quality credit, how credits should be used when claiming the achievement of private sector net zero targets, relevant disclosure and assurance processes, the need for common international standards and principles, and the need for clarity on a range of regulatory matters.
Whilst it is important that the market is able to innovate, there is a clear appetite for UK government action to ensure the market grows in a manner that provides assurance on integrity. This includes considering targeted regulatory interventions where these will help the market play a greater role in the transition to net zero and ensure companies are not incentivised to use credits as an alternative to taking action on their own internal emissions. 92. More is needed to build international consensus on VCMs, including their interactions with Article 6. The Voluntary Carbon Markets Initiative (VCMI) and the Integrity Council on Voluntary Carbon Markets (VCMI), created through international multistakeholder processes during the UK’s COP26 Presidency, are striving to tackle many of these challenges by providing greater clarity on the definition of high-integrity VCMs. Both initiatives will publish their guidance this year; the UK government will consider the potential for their outputs to serve as a basis for international best practice on market integrity, and the extent to which they could be incorporated within relevant regulatory regimes, including through the consultation set out in section 3.4.3. The UK government has confirmed its intention to position the UK as a global hub for trading in voluntary carbon markets, and is grateful for the work of the UK VCM Forum and its chair, Dame Clara Furse, to this end. 93. Nature markets enable farmers and natural resource managers to sell carbon and other ecosystem services – the benefits provided by nature – through sustainable management and nature restoration projects. Nature markets may be voluntary or driven by regulatory obligations. They include VCMs such as the UK Woodland Carbon Code and UK Peatland Code, and other emerging nature markets such as Biodiversity Net Gain in England. Further opportunities exist in markets still in development such as for blue 94. Nature markets need to grow rapidly to attract investment at the scale required to achieve our net zero and environmental targets. The UK government is committed to supporting the development of markets for carbon and other ecosystem services in the UK, guiding, and stimulating demand while also ensuring that they build trust and confidence. 95. We are supporting market participants to develop and converge around common, trusted standards and processes which will ensure integrity. With the right policy guardrails, the growth of nature markets can represent a triple delivering for the climate and the environment; providing vital revenue streams to finance farm businesses and nature recovery; and enabling responsible firms to meet their net zero and environmental obligations and commitments transparently and efficiently. 96. As announced at Budget 2023, the UK government is exploring elements of the tax treatment of ecosystem service markets and environmental land management. This includes a call for evidence published on the 15 March 2023 on the tax treatment of the production and sale of ecosystem service units. The aim is to understand the commercial operations and the areas of uncertainty in respect of taxation. The Peatland Code and UK Saltmarsh Code are voluntary certification standards for UK peatland restoration projects, providing a consistent approach for projects wishing to attract carbon finance. We recently funded the International Union for Conservation of Nature (IUCN), UK Centre for Ecology & Hydrology (UKCEH) and the James Hutton Institute to expand the Code to a significantly larger area of England’s peat. This will help facilitate more private investment into peatland 97. We are also supporting innovation to develop and pilot new nature markets. Our Natural Environment Investment Readiness Fund (NEIRF) is supporting the development of 86 nature projects across England to generate revenue from nature markets and operate on repayable private sector investment. Projects will either monetise the benefits of nature or develop tools or standards to help others to do so. We will consider options

for continuing our investment readiness support for nature projects beyond the current iteration of the NEIRF, drawing on the results of an independent Box 29: Supporting farmers to participate in nature markets As custodians of over 70% of UK land, farmers will be key to the success of nature markets, and we are committed to ensuring they can access these markets. A recent report from the GFI’s Farming and Finance working group on ‘Financing a Farming Transition’, identifies barriers and corresponding enablers under the themes of Data, Priority Environmental Outcomes, Environmental Markets Principles and Aggregation Models. The UK government will progress work in each of these areas, including through actions set out in this Strategy – and we have commissioned the GFI to develop an online toolkit this year to help farmers identify and navigate opportunities to access private sector investment to pay for nature positive outcomes. Environmental Farmers’ Group – a collaborative aggregation model Aggregating supply is key for attracting investment into natural capital. The Natural Environment Investment Readiness Fund (NEIRF) has awarded funding to the Environmental Farmers Group (EFG), a natural capital trading co-operative that operates across several farmer clusters in the Avon catchment. It aims to facilitate access for its 75 farmer members to private nature markets, providing a fair financial return on restoring their natural capital through the sale of biodiversity units, nutrient offsets and carbon credits. EFG’s aggregation model provides an opportunity for organisations looking for large-scale environmental trades to deal with a single body. In order to develop scale and ensure the inclusion of smaller farms, equalisation is built into the member contracts so that 88% of a trade will go to the member farm providing the ecosystem service/environmental outcome, while 9% is shared with the farms in the catchment area. The remainder pays for EFG’s operating costs. 3.4.3 Accelerating Market Development 98. The UK government will act to unlock the potential of high-integrity voluntary carbon and nature markets to contribute to net zero and wider environmental improvement. We will consult later this year on specific steps and interventions needed to mobilise additional finance through high- integrity voluntary markets and protect against the risk of greenwashing.
This will be guided by the principles a. Interventions across government and the private sector should create a cohesive regime for unlocking capital, with voluntary markets

effectively integrated into the long-term strategy for financial disclosure b. Regulatory responsibilities should be clarified, and regulations introduced in a proportionate manner where there is clear evidence that doing so would improve the integrity and scale of the UK market; and c. High-integrity voluntary markets should be encouraged, with the right principles and transparency to protect investors and consumers, ensure additionality towards net zero and the environment, and where appropriate seek to maximise synergies between carbon and nature 99. This consultation will respond to key recommendations of the independent Net Zero Review and the findings of the CCC’s report on Voluntary Carbon Markets and Offsetting. Recognising the interconnectedness of global carbon markets, it will build on the work of key international initiatives (see section 3.4.1) to develop guidance for best practice in the international market and consider how their findings should be applied in the context of the UK market and regulatory regime, including to ensure a coherent approach across carbon and other nature markets. 100. The Transition Plan Taskforce will provide clarity on the use of high- integrity VCMs within its framework, aligning with international best practice. We will continue to work with leading stakeholders to address remaining uncertainties on the interface between VCMs and Article 6 and promote consensus on best practice for high-integrity VCMs through multilateral 101. We are publishing alongside this Strategy the first Nature Markets Framework. This sets out principles and priorities for the development of mechanisms for investment in ecosystem services - including carbon removal and storage, biodiversity and water quality - and aims to clarify how farmers and natural resource managers can engage in nature market to 102. At the core of this framework is the principle of environmental integrity. It builds on experience and lessons learned from the development of the UK Woodland Carbon Code and UK Peatland Code as well as emerging international best practice, such as that being developed by VCMI and VCMI. It also provides further details on how revenue streams from multiple nature markets and public grants such as Environmental Land Management schemes can be combined or ‘stacked’ to make it easier to finance genuinely ambitious, multifunctional land use patterns. 103. The Framework also sets out our plans for the British Standards Institution to work with business, finance, farming and environmental experts to develop a comprehensive suite of nature investment standards. [footnote

104. Finally, we recognise the integrity offered by the UK ETS could unlock investment at scale in the UK’s greenhouse gas removal sector by proving an integrated market where businesses can make economically efficient choices on how to decarbonise or remove their emissions. We will work with the UK ETS Authority to consider options for integrating greenhouse gas removals in the UK ETS, subject to the outcomes of last year’s UK ETS consultation, a robust Monitoring, Reporting and Verification regime being in place, and the management of wider impacts - including market stability and the permanence of the emissions stored by the greenhouse gas removal technologies. Further detail will be provided in the government response to Box 30: Blue carbon - opportunities to boost investment in our Certain marine and coastal habitats capture and store carbon dioxide. These blue carbon habitats are richly biodiverse ecosystems that provide a crucial buffer from coastal flooding, benefit long term fish stocks and improve water quality. The UK government supports the development of blue carbon and ecosystem markets as one means to help mobilise the finance required for blue carbon habitat creation and restoration. We will ensure that blue carbon markets are developed and implemented in line with agreed principles that ensure robustness, market credibility and efficiency. Codes or standards for claiming blue carbon credits are still in early stages of development in the UK. Our Natural Environment Investment Readiness Fund is supporting projects looking into this, including almost £300k of grants to measure and verify the carbon storage potential in saltmarshes, which will help leverage private investment into these important habitats. 3.5 Beyond the Supporting green investment in emerging markets and developing economies 105. The need to develop effective enabling environments, build capabilities in key institutions, develop bankable project pipelines and deploy public resources effectively to mobilise private investment at scale are common challenges faced by all countries.The UK’s green finance expertise, the strengths of the City of London and our strong track record in delivering innovative climate finance provide an opportunity to work with our partner countries to tackle the structural challenges they face in unlocking green

106. As the Intergovernmental Panel on Climate Change’s (IPCC) March 2023 Synthesis Report shows, limiting warming to 1.5°C to 2°C above pre- industrial levels will require a 3-to-6-fold increase on current levels of climate change mitigation investment to 2030, with investment to emerging markets and developing economies (EMDEs) a critical enabler to closing this investment gap. [footnote 176] Separate analysis shows that to achieve climate and nature goals, EMDEs (excluding China) will require over $1 trillion per year in external investment by 2030.177 The financial sector has a huge role to play in meeting this challenge and all major financial centres will be considering how they can contribute. 107. Our actions in Chapter 2 to align the financial system are pre-requisites for unlocking this growth, with our actions to green the UK financial sector helping unlock green investment well beyond our borders. In tandem, the UK International Climate Finance (ICF) Strategy sets out our full approach to deploying public climate finance to projects and investment on the 108. Complementing those approaches, this section sets out how the UK will mobilise green investment into EMDEs a. Country partnerships and building capability – building long-term relationships to exchange learning, support national planning processes, and develop project pipelines. b.
Strategic public investment and enhancing the scale of investment opportunities – mobilising private investment through blended finance structures and supporting access to large‑scale investment, such as through issuance of green and sustainable bonds. c. Innovative approaches to unlock private capital – building on the ingenuity of the UK financial sector to adopt and scale innovative financial instruments, including by establishing high‑integrity carbon markets and developing listed products. d. Global impact through reform of the international financial architecture – reforming international financial institutions to work better with the private sector and deliver greater impact in meeting the climate and nature investment challenge. e. Enabling private investment in international climate adaptation – providing financial support and building coalitions to address the barriers to private investment in adaptation and resilience. levers relevant to climate and nature investment in emerging markets UK International Climate Finance (ICF)

ICF is the UK’s primary resource for providing climate related financial support towards the $100 billion goal. We are committed to deliver £11.6 billion between 2021/22 and 2025/26 through bilateral and multilateral channels, supporting EMDEs adapt and build resilience to the current and future effects of climate pursue low carbon economic growth and development protect, restore and sustainably manage nature accelerate the clean energy transition British International Investment (BII) BII is the UK’s Development Finance Institution (DFI), investing in private firms in ODA-eligible countries in Africa and South Asia, and expanding through a phased approach to the Indo-Pacific and the UKEF is the UK’s Export Credit Agency (ECA) and in 2022 was ranked as the world’s top E C A for sustainable financing, with over £3.6 billion awarded to clean energy, healthcare and critical infrastructure projects International Financial Institutions (IFIs) and multilateral climate IFIs refers to multilateral development banks (MDBs) and the International Monetary Fund (IMF), in which the UK is a major shareholder. The UK is also a major donor to multilateral climate and environment funds such as the Green Climate Fund (GCF), Global Environment Facility (GEF) and Climate Investment Funds (CIF). 3.5.1 Country partnerships and building capability 109. Mobilising green finance at scale requires clear country or regional strategies to meet climate and nature objectives, accompanied by strong pipelines of investment opportunities. The UK will continue working with partner countries to develop these approaches, including sharing knowledge and expertise we have gathered from our domestic action. This will help raise global ambition, accelerate investment, and build lasting capability and partnerships between public and private financial institutions. It will also create effective public policy which provides long-term market confidence

110. Through the UK’s ICF, we will continue to develop and implement capacity building instruments in support of these goals. Key current a. UK Partnering for Accelerated Climate Transitions (UK PACT) supports countries to put in place the building blocks for mobilising finance through country programmes, skill-shares, secondments and b. Through our co-chairing of the NDC Partnership we have helped put in place a finance strategy to support investment in countries’ nationally determined contributions (NDCs). c. The UK’s Climate Finance Accelerator (CFA) helps countries develop bankable project pipelines while identifying suitable financing options. The programme operates in 9 countries[footnote 179] and convenes project developers, financiers and policymakers in capacity building workshops. The CFA has supported 111 low carbon projects with a potential total value of around $2.3 billion, representing a material and direct contribution to projects and programmes in EMDEs. d. The Nature Positive Economy Programme was launched in 2022 to meet the growing imperative for long-term financing strategies for nature. The programme supports public and private financial institutions in EMDEs to integrate nature-related risks and opportunities into decision making. This involves implementing strategies, tools, and frameworks, and supporting engagement with governments on reforming environmentally harmful subsidies. Building on the Dasgupta Review, the UK’s Nature Transition Support Programme also supports EMDEs to analyse the relationship between nature and their economies, and will support partners to identify and implement resilient pathways for nature, 111. Beyond our bi-lateral support, the UK will continue supporting efforts by MDBs to integrate climate and nature investment into national development plans, and for the development and implementation of ambitious Long-Term Strategies for low carbon, climate-resilient development. This includes the World Bank’s Country Climate and Development Reports (CCDRs), a diagnostic tool which integrates climate and development. The UK is also the biggest contributor to the World Bank’s Global Programme on Sustainability (GPS), which provides global and national analysis of the value of natural capital and ecosystem services, including risks and opportunities for sustainable development. 112. Building on the success of our individual programmes, we are going further to develop ambitious funding models and stronger long-term partnerships to ensure co-ordination and coherence between public and private finance on the ground. This is key for ensuring the impact of climate finance is more than the sum of its parts. The UK will work to do this through initiatives like the Just Energy Transition Partnerships (JETPs) for clean energy transitions and the Lowering Emissions by Accelerating Forest

Finance Coalition (LEAF) for protecting tropical forests and reducing Box 31: Just Energy Transition Partnerships (JETPs) JETPs are ambitious partnerships that will deliver investment for just energy transitions away from fossil fuels in partner countries. They bring together a critical mass of development, philanthropic, private, and domestic finance to accelerate early retirement of high-emitting assets, invest in renewable energy and related grid infrastructure, and support an inclusive and equitable transition for affected communities. The first JETP was launched with South Africa at COP26 with the UK leading an ‘International Partners Group’ to support South Africa’s leadership, and includes an initial $8.5 billion in public finance. At COP27, South Africa presented its JET Investment Plan, setting out the country’s investment needs to support its decarbonisation commitments and aiming to mobilise a further $98 billion – showing the investment opportunity for the private sector.
JETPs have also now been launched in Indonesia (US and Japan co- lead G7 engagement with the country, with UK support) with a total finance package of $20 billion, and Vietnam (UK and EU co-led) with a total finance package of $15.5 billion. As part of these finance packages, a coalition of private sector investors co-ordinated by the Glasgow Financial Alliance for Net Zero committed $10 billion and $7.75 billion to the Indonesia and Vienam JETPs, respectively, matching the public finance commitments for both partnerships. Discussions are ongoing to agree further JETPs with the government of Senegal and government of Alongside the aggregation of finance, the UK is supporting partner countries to make critical policy reforms to enable private investment at scale in renewable energy and energy efficiency. The UK’s immediate priority for JETPs is supporting implementation of partnerships in countries where they are already underway. This has potential to inform approaches taken elsewhere in efforts to accelerate the transition to low carbon, inclusive economic growth. 113. Financing for the transition can further benefit from dialogue between countries with comparable challenges and contexts. To enable this, the UK a. Our co-leadership of the Glasgow Breakthrough Agenda, which is accelerating the global development and deployment of clean technologies. Launched at COP26 by 45 world leaders representing over 70% of global GDP, the Breakthroughs Agenda is driving targeted

international cooperation to make clean technologies the most affordable, accessible, and attractive choice globally by 2030. [footnote 180] b. The Energy Transition Council, which brings together political, financial, and technical leadership in the power sector to make clean energy the most affordable and reliable option for its 11[footnote 181] partner countries. The Council mobilises, tailors and coordinates international public and private finance offers to the energy transition needs of partner countries, including through its Rapid Response Facility. It also improves the timing and relevance of assistance provided by participating institutions including international donors, multilateral development banks, philanthropies and technical agencies. c. The International Just Transition Declaration which the UK brought forward at COP26, and for the first time sets out how countries providing climate finance would ensure that their international support is playing its part to create good, green jobs around the world. At COP26 the Declaration was signed by 18 donor countries, covering a significant proportion of global international public financing. The UK will continue to collaborate with international partners to embed these principles in our ICF and broader funding streams. 114. In tandem with our efforts on climate, in 2022 the UK – in collaboration with Ecuador, Gabon, and the Maldives – set out a political vision for bridging the global nature finance gap through the 10 Point Plan for Financing Biodiversity. The Plan presents a clear pathway for bridging the global nature finance gap by defining the role of all sources of finance, with a particular focus on how international public finance can support EMDEs to accelerate the transition to become nature positive. 3.5.2 Strategic public investment and enhancing the scale of 115. While there is no shortage of private capital available to deliver climate and nature goals, public finance has an important role in catalysing investment and creating markets. For this reason, the UK has worked with international partners to establish key multilateral climate and environmental funds such as the Climate Investment Funds, Green Climate Fund and Global Environment Facility and is collectively one of the largest contributors to these funds. We will continue to support their work to deliver impact at scale, leverage private investment and maximise value for money. 116. The UK will use its ICF strategically to incentivise and enable investments in EMDEs through a variety of finance instruments, which can be adopted by international partners and markets to reach scale, building on the £5.2 billion in private finance that UK interventions have mobilised to date. [footnote 182] This includes deploying blended finance structures and tailoring them to local needs and investor risk-tolerance. It also includes working to enhance the scale of investment opportunities in EMDEs to enable access to deep pools of capital from institutional investors, for example through supporting issuance of green and sustainable bonds. 117. The UK has developed several vehicles to do this, a. British International Investment (BII) provides capital and expertise to private firms in Africa and South Asia, and is now expanding to the Indo-Pacific and the Caribbean. The UK government aims to deploy £200 million of concessional capital through BII’s new Climate Innovation Facility to invest in the scale-up of pioneering technologies and climate solutions in markets where private investors have been reluctant to take on the risk alone. B I I has also invested $75 million in Africa and South Asia’s first Green Basket Bond, a new innovative, multi- currency, financing structure arranged by Symbiotics, a leading emerging markets access platform and financial lender. The bond will finance small-scale green projects and businesses, funded through 10- 15 micro, small, and medium enterprise (MSME) banks. b. The Private Infrastructure Development Group (PIDG) supports the development of sustainable infrastructure in Africa, Asia and the Indo-Pacific. Underpinned by majority UK funding, PIDG has closed on 190 infrastructure projects and mobilised $23 billion in private investment since 2002. [footnote 183] PIDG deploys a mix of technical assistance, viability gap funding and long-term debt, and provides local currency guarantees to mobilise finance for green infrastructure from local pension funds and insurance companies. PIDG has pioneered development and issuance of green bonds in EMDEs, including supporting Vietnam’s first onshore, internationally certified green bond. Bond proceeds will allow the issuance of longer-term loans to finance c. Through its investment arm, the UK-funded Financial Sector Deepening (FSD) Africa provides early-stage, risk-bearing capital to inventive financial sector organisations to stimulate capital flows in support of green economic growth. FSD Africa also supports issuance of green and sustainability bonds on the continent.
This includes helping Morocco’s national rail operator issue Africa’s first corporate clean mobility green bond to electrify the country’s railways, and supporting Kenya to issue its first green bond. 118. Whilst strengthening trade and supply chains, UK Export Finance (UKEF) is also playing an important role in financing sustainable infrastructure in EMDEs. In 2021 to 2022, UKEF provided £7.4 billion in support for UK exports, helping to finance exports to 61 countries without any support for overseas fossil fuels projects. [footnote 184] This includes £3.6 billion financing awarded to clean energy, healthcare and critical infrastructure projects, including projects in EMDEs such as Côte d’Ivoire and Türkiye. Some UKEF products include buyer finance support, which helps UK suppliers win contracts on overseas clean growth projects by providing attractive financing terms for overseas buyers. This includes repayment periods of up to 18 years in some sectors, such as renewable energy. UKEF also offer direct lending from a £2 billion allocation ringfenced

to support projects aligned with the International Capital Markets Association’s Green Bond Principles. 119. Despite challenges, emerging nature sectors are providing some of the most promising investment opportunities globally. The UK’s £100 million Biodiverse Landscapes Fund (BLF) will have a strong focus on leveraging private capital to protect biodiversity and reduce poverty in 6 global biodiverse hotspots across 3 continents. We will also leverage private investment through over £40 million of investment in the Eco Business Fund and the Land Degradation Neutrality Fund, which are dedicated to raising public and private capital to support sustainable land use projects 3.5.3 Innovative approaches to unlock private capital 120. Harnessing the innovative potential of financial markets and unlocking all available sources of finance will be crucial to meet climate and nature goals. The UK will continue to support such approaches across our portfolio, working closely with the private sector to make our public finance go further, enable innovation in capital markets, and adapt financial instruments in response to the specific challenges of climate and nature financing. This a. Through the new Climate Investment Funds Capital Market Mechanism (CCMM). This new fund is expected to issue green bonds in the region of $5-7 billion through the London Stock Exchange for EMDEs to develop clean technologies at scale, which in turn is anticipated to leverage 10 times the amount in co-financing at the project level. It will use returns from historic investments through the Climate Investment Funds (CIFs), to which the UK is the largest contributor, b. New solutions to help countries leverage the potential of capital markets, including through the Mobilising Institutional Capital Through Listed Product Structures (MOBILIST) programme. MOBILIST uses UK funds on commercial terms to enable EMDEs to list on public markets like the London Stock Exchange. For example, a UK investment of £24.5 million through MOBILIST resulted in an IPO of £115 million for Thomas Lloyd Energy Impact Investment Trust to invest c. The use of results-based payments, using learning developed through programmes such as the Transformative Carbon Asset Facility, Ci- Dev and our support for REDD+, can optimise performance of climate projects by linking payment to outcomes. We are already using lessons from these programmes to inform approaches to high-integrity carbon credits, and they offer the potential to inform development of sustainability-linked financing products, which are of increasing interest d. Innovating and championing new debt arrangements that enable vulnerable countries to invest without the risk of being unable to service

their debts in the event of climate impacts. In response to calls from many vulnerable countries to introduce climate resilient debt clauses (CRDCs), to pause debt repayment when climate shocks or natural disasters hit, the UK announced that UK Export Finance will be the world’s first export credit agency to offer CRDCs in direct sovereign lending. The UK has also published principles for including CRDCs in private sector loans and is calling on more international financial institutions (IFIs) and the private sector to adopt them. 121. We are also working to identify, develop and scale early stage financial products and practices to meet EMDE needs and mobilise private investment, including for nature finance. This a. The Global Innovation Lab for Climate Finance, a public-private partnership that mobilises finance for financially innovative ideas, making them investable and ready to implement. 62 projects supported to date have mobilised $3.5 billion in sustainable investment. [footnote 185] The UK is working with the Lab to scope new support for projects in Latin America, including a potential thematic window to identify innovative financing solutions for high‑integrity forests. b. Our new £65.5 million Accelerate-to-Demonstrate (A2D) Facility, delivered in partnership with the United Nations Industrial Development Organization (UNIDO) will drive forward the clean energy transition in EMDEs through innovative technologies and the business models needed to deploy them. This is an expansion of our Clean Energy Innovation Facility, which since 2019 has leveraged around £40 million in direct private investment in EMDEs. We will continue to broaden this portfolio and look to bring in additional international partners over time. c. The UK’s £500 million Blue Planet Fund (BPF) supports EMDEs to reduce poverty, protect and sustainably manage their marine resources and address human- generated threats. Programmes under the BPF include technical assistance to support blue bond development and funding for innovative financial tools that encourage private investment into marine nature-based solutions. d. The UK’s Biodiversity Challenge Funds (the Darwin Initiative, Illegal Wildlife Trade Challenge Fund, and Darwin Plus) award grants to support the development and adoption of financial mechanisms to benefit biodiversity, people and the planet. This includes soil carbon credits to support conservation of savanna in Tanzania, insurance for villagers in areas of Human Wildlife Conflict in Nepal, and payments for water to support conservation of tropical forest in Bolivia. To support the mobilisation of financial resources in pursuit of Target 19 of the GBF, we will also investigate further innovative mechanisms to fund biodiversity, including biodiversity credits. 122.
In addition, carbon markets are a significant potential source of untapped finance for EMDEs which offer the potential to lower the cost of the transition. Under the UK COP26 Presidency, agreement on global carbon trading rules (‘Article 6’) was reached after many years of

negotiations, providing a basis for international norms and standards to unlock finance whilst providing assurance on environmental integrity. As we take forward action to implement Article 6 and await the findings of voluntary market initiatives such as VCMI and IC-VCM (see section 3.4), we will aim to strengthen the international consensus needed to unlock a truly global market, provide social protections and avoid greenwashing. This will include working with VCMI to take forward Country Contact Groups to enhance 123. The UK government is one of the largest providers of capacity building support for EMDEs seeking to participate in carbon markets and has committed over £650 million to funds supporting carbon markets and results-based payments. [footnote 186] As we consider future interventions, the UK will look to ensure coherence in capacity building measures across both voluntary and compliance markets, including working through the Article 6 Implementation Partnership to improve coherence of capacity building efforts. We will work with delivery partners and EMDEs to ensure collaboration with the private sector in delivering high-integrity markets. In addition, we will work to establish complementarity between high‑integrity markets for voluntary and compliance purposes, and between those for climate and other environmental services; and to ensure indigenous people and local communities are protected. 3.5.4 Global impact through reform of the international financial 124. International Financial Institutions are a major source of support to emerging markets and developing economies (EMDEs), with MDBs having provided $51 billion in climate finance in 2021. [footnote 187] In line with decisions at COP27, the UK will champion and target specific reforms of the international financial system to make it stronger. We will use our influence in these institutions to drive mobilisation at the scale needed to meet climate and environmental challenges. This includes leading the response to the Bridgetown Initiative, the World Bank Evolution Roadmap and the G20 MDB Capital Adequacy Framework Review. Combined with our efforts to green the financial system and enhance the effectiveness of the climate funds, this will be critical in ensuring an international system that is able to 125. By implementing the recommendations of the G20 MDB Capital Adequacy Framework Review, MDB balance sheets could be used to release billions of dollars of additional finance for EMDEs. The UK is leading in delivering some of the recommendations. For example, since COP 26 we have announced UK guarantees to expand MDB lending by over $5 billion, including to support Just Energy Transition Partnerships, such as through the $2 billion Room to Run guarantee for the African Development Bank (AfDB), developed in partnership with the K insurance industry. We expect to further scale up our guarantee portfolio in future. 126. Directing Special Drawing Rights (SDRs) to deliver on the global commitment – first made by G7 Leaders in the UK – to channel $100 billion of SDRs to vulnerable countries, could be significantly aided by MDB capabilities. We are exploring the possibility of channelling some SDRs to the African Development Bank through a hybrid capital instrument which would allow the Bank to leverage it by 3 to 4 times, potentially becoming a 127. Due to their geographical reach, financial expertise and influence, MDBs have significant potential to scale up private finance mobilisation, building on approaches we already know work. In particular we will support MDBs to develop innovative new investment vehicles which provide the scale and diversification to attract institutional investors, scale-up support for green capital market development, support the expansion of specialist infrastructure platforms, and deliver strategies for scaling their use of risk transfer as recommended by the G20 MDB Capital Adequacy Framework 128. The UK will support efforts to increase shock-responsiveness of MDBs. In recent years the MDBs have significantly scaled up their work with countries to develop crisis preparedness plans and to introduce new contingent finance instruments. But more can be done to improve the responsiveness of the financial system to climate shocks. The UK government is therefore working to promote Climate Resilient Debt Clauses (CRDCs) with the MDBs, development finance institutions (DFIs) and the private sector following the announcement of their adoption by UK 129. The UK will continue to push for increased volume and effectiveness of MDB climate change spend, including by encouraging more transparency, scaling up outcome indicators and targets, strengthening policy-based lending for climate, and ensuring the joint MDB climate co- benefits framework incentivises the most impactful climate interventions. We will work with MDBs to mainstream climate change within their technical assistance support, including by supporting borrowers to integrate climate considerations in policy formulation to manage climate-related fiscal risks and strengthen enabling environments. 130. The UK is also pursuing reforms to the International Monetary Fund’s approaches to ensure it is better able to contribute to climate and nature financing challenges, a. Supporting the Resilience and Sustainability Trust (RST), which became operational in late-2022. We will continue to shape the RST to ensure it meets vulnerable countries’ needs for increased fiscal space to b. Advocating to increase financing for the poorest countries, and for increased access limits for Low Income Countries and greater resourcing of the Poverty Reduction and Growth Trust (PRGT). c. Ensuring that climate and nature degradation risks are better reflected in assessments of macroeconomic stability. 3.5.5 Enabling private investment in international climate adaptation. 131. The mobilisation of private investment into adaptation projects has faced challenges, in part due to the difficulty in generating sufficient revenue flows from projects. In recognition of this and the critical need for adaptation finance for vulnerable countries, at COP27 the Prime Minister announced that the UK will triple its funding for adaptation from £500 million in 2019 to 132. To respond to the growing impacts of climate change around the world, private investment needs to be channelled into adaptation.
Greater awareness of climate risk amongst investors will help attract private investment to adaptive projects, and innovative financial approaches have the potential to enable the private sector to play a greater role. We are drawing lessons from our long-term efforts to increase private investment in mitigation and bringing financial institutions together to break down investment barriers for adaptation, delivering co-benefits for people, climate 133. MDBs and DFIs are key actors in scaling up adaptation finance, and the UK is supporting them, including by investing £200 million in a new African Development Bank Climate Action Window. This seeks to attract private investment for adaptation projects in some of the countries most vulnerableto climate change. BII is working with other DFIs through the Adaptation and Resilience Investors Collaborative (ARIC), to improve understanding of investment in adaptation solutions and developing tools to support the mobilisation of private investment. 134. The risk profile of investments impacted by climate change remains a critical barrier to investment. As such, the UK is supporting the Coalition on Climate Resilient Investment (CCRI) to develop tools to more efficiently and effectively price physical climate risk so that the cost of capital is not needlessly inflated. CCRI comprises over 120 members managing $25 trillion in assets. [footnote 188] Its work includes piloting tools in Jamaica to review critical infrastructure investment gaps, modelling climate risks to that infrastructure, and enabling the government and investors to identify 135. As the physical impacts of the climate and nature crises grow, insurance will become ever more important to protect the resilience of countries to better respond to disasters. This is why the UK announced in 2021 a new £120 million funding package for Disaster Risk Financing (DFR), helped establish the Global Shield Against Climate Risks, and set up the Centre for Disaster Protection. DFR leverages the expertise and capital of UK insurance and reinsurance markets to increase the resilience of climate vulnerable countries, by providing cheaper, faster and more effective responses to disasters. There is strong demand for this support from climate-vulnerable countries and a track record of success. The Caribbean transfers over $1.2 billion of hurricane risk each year to its regional risk pool. Africa’s regional insurance scheme has covered over $1 billion of risk so far, and in 2021, its scheme paid out over $65 million to help African countries respond to droughts and storms. 1. This Strategy is the UK’s comprehensive blueprint that will unlock green finance and investment, reinforcing the UK’s place at the forefront of this market and deliver on the UK’s climate and nature objectives. It sets out the actions the UK government will take to support our financial services sector and investment community to invest in the green economy; prosper from a transitioning global economy; provide information and tools to the financial sector to manage risks from climate change and nature loss; and support the global transition. We look forward to continuing close collaboration with industry as part of ensuring that the UK maintains its position as a global In 2023– Publish a series of net zero investment roadmaps and a nature – Consult on the specific steps and interventions needed to mobilise additional finance through high-integrity voluntary markets and protect against the risk of greenwashing. – Work with UK financial institutions to start a series of government-convened roundtables, to further tackle deforestation- – Host a series of roundtables to engage stakeholders on how we can continue to clarify fiduciary duty. – Consult on the UK Green Taxonomy – Bring into force amended regulations to implement pensions reforms, subject to Parliamentary approval, as early as April 2023. – First meeting of Net Zero Business and Investment Group. – Launch a formal assessment mechanism as soon as the first 2 IFRS Sustainability Disclosure Standards are published (expected – Set out further detail on the SDR implementation timeline to reflect the rapid development of international standards. – Engage stakeholders on an update to the Environmental Reporting Guidelines, which provide voluntary environmental

reporting guidance for UK organisations. – Launch a call for evidence on scope 3 emissions reporting. – Publish the first impact report detailing the environmental impacts and any social co-benefits resulting from the expenditures of the Green Financing Programme, in September 2023. – Host the Global Investment Summit 2023. – Provide further information and clarity for trustees on their fiduciary duty in the context of the net zero transition by reviewing Stewardship Guidance (late 2023). – Consult on the introduction of requirements for the UK’s largest companies to disclose their transition plan if they have them. This consultation will take place once the TPT has completed its work – Explore how best the final TNFD framework (expected September 2023) should be incorporated into UK policy and legislative architecture, in line with Target 15 of the Global – The FRC – working with the FCA, government and The Pensions Regulator – will review the regulatory framework for effective stewardship, including the operation of the Stewardship 1. GFANZ (2023), GFANZ membership ( 2. McKinsey (2021), ‘The Net-Zero What would it could cost, what it would bring ( insights/opportunities-for-uk-businesses-in-the-net-zero-transition)’ 3. Internal DESNZ analysis, Low carbon and renewable energy ( enewableenergyeconomyfirstestimatesdataset) and UK goods and ( uktradegoodsandservicespublicationtables) 4. HM government (2021), Net Zero Strategy ( pp.327-328. Figures represent in-year capital expenditure requirements, exclude

91. Climate Change Committee (2023), Investment for a well-adapted UK ( 92. Preinfalk, E et al (2021). How does adaptation affect the public finances? In COACCH Policy Brief, September 2021. Monetary Valuation of Risks and Opportunities in CCRA3 ( content/uploads/2021/06/Monetary-Valuation-of-Risks-and-Opportunities-in- 93. UK government, Automotive Roadmap (2022): Driving us all forward ( 94. UK government (2022), Hydrogen investor leading the way to net zero ( roadmap-leading-the-way-to-net-zero) 95. UK government (2022), Carbon capture, usage and storage (CCUS): investor roadmap ( usage-and-storage-ccus-investor-roadmap) 96. UK government (2022), Jet Zero investment flightpath ( 97. UK government (2021), Net Zero Strategy ( pg 216. 99. Programmes and products include SUL (Start Up Loans), the Nations and Regions Investment Funds and the BBI Investment Programmes 100. Programmes and products include the Recovery Loan Scheme RLS and 101.
Programmes and products include the Enterprise Capital Funds (ECF), Nations and Regions Investment Funds, British Patient Capital BPC, BBI Regional Angels Programme and BBI Managed 102. Programmes and products include the Export Development Guarantee and the General Export Facility 103. Programmes and products include the Direct Lending Facility and Buyer 104. Programmes and products include the Buyer Credit Facility 105. Programmes and products include Catapult support 106. Programmes and products include KTN support 107. Programmes and products include KTN support and Innovate UK EDGE 108. Programmes and products include Innovate UK EDGE scale-up support

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