Press Releases

UK government should use its own financial institutions to finance net-zero transition

Accelerate the UK economy’s transition to a net-zero economy by scaling up government-owned financial institutions and giving them a strong climate mandate

The UK government should finance the transition to a net-zero economy by making full use of the financial institutions which it already owns, according to research from the New Economics Foundation (NEF), published today. The report finds that the UK’s state-owned financial institutions are not pulling their weight when it comes to tackling the climate crisis – they have no obligation to support the green transition, and in some cases have been actively undermining it by financing carbon intensive sectors like fossil fuels.

According to the report, the British Business Bank, UK Export Finance and the CDC Group on average finance over £7bn worth of projects every year. Despite this level of investment, their mandates and operations have not been updated in light of the government’s net-zero objectives. The report recommends that state-owned financial institutions’ investment and borrowing capacity be scaled up and directed towards helping the UK meet its climate targets. While tackling climate change is part of the core mission and strategic objectives of the new UK Infrastructure Bank, the report notes that similar mandates are lacking for other state-owned financial institutions.

Recent reports say that the prime minister and chancellor have clashed over the potential cost of meeting the country’s climate targets. According to the Committee on Climate Change, green capital investment in the UK will need to scale up from around £10bn a year today to a peak of over £55bn a year in 2035. Today’s report from NEF finds that some of this cost could be met by mobilising the government’s state-owned financial institutions, and that it would encourage private companies to also invest in carbon-cutting projects. As well as delivering environmental and public health benefits, investment would create a new wave of green, high-skilled and well-paid jobs.

The report recommends that all four state-owned financial institutions be given a government mandate to align their operations with the UK’s climate goals and help deliver a fair transition to net zero. For instance, the British Business Bank has so far supported 94,800 smaller businesses with £8bn in finance. Despite this, the Bank has no obligation to cut carbon in the economy, when SMEs make up nearly 12% of UK’s carbon emissions. The report recommends that institutions like this should, within prudent restrictions, be allowed to raise as much funding as they need to help the UK, and the countries it aids, to transition to a net-zero economy. The report also finds that, because state-owned financial institutions are less beholden to generating short-term returns, they are better suited to prioritise wider social and environmental objectives like tackling the climate crisis.

In order to mobilise the resources of the UK’s state-owned financial institutions, the report recommends that the government:

  • Update each institution’s mandate so they are required to support a just transition to a net – zero economy.
  • Replace arbitrary limits on institutional borrowing and lending with the ability to raise as much funding as they need, including from the Bank of England, to meet their climate mandate, as long as their balance sheets are managed prudently within an agreed envelope of leverage and risk.
  • Establish a new state holding company, UK Public Finance, to exercise oversight and control of these state-owned financial institutions. This would enable them to coordinate complementary strategic planning and democratic accountability, and ensure a more cohesive public finance ecosystem.

Laurie Macfarlane, economist and report author, said:

The chancellor Rishi Sunak has pledged to make the UK a world leader in green finance. But the UK government’s own financial institutions are still not pulling their weight when it comes to the green transition. With COP26 just a few months away, the UK has a responsibility to lead by example.

Our new report sets out a series of recommendations for scaling up the UK’s state-owned financial institutions and aligning them with the government’s climate objectives. If implemented, our proposals would ensure that the UK’s public finance ecosystem makes a significant contribution to the transition to net zero – both at home and abroad.”


The New Economics Foundation is a charitable think tank who are wholly independent of political parties and committed to being transparent about how it is funded.

The full report, Greening Public Finance, will be available at https://​newe​co​nom​ics​.org/​2​0​2​1​/​0​9​/​g​r​e​e​n​i​n​g​-​p​u​b​l​i​c​-​f​i​nance from Thursday 9 September 2021 00.01.

The Guardian: Treasury blocking green policies key to UK net-zero target https://​www​.the​guardian​.com/​e​n​v​i​r​o​n​m​e​n​t​/​2​0​2​1​/​a​u​g​/​1​3​/​t​r​e​a​s​u​r​y​-​b​l​o​c​k​i​n​g​-​g​r​e​e​n​-​p​o​l​i​c​i​e​s​-​k​e​y​-​t​o​-​u​k​-​n​e​t​-​z​e​r​o​-​t​arget

Committee on Climate Change estimates for UK green capital investment can be found at https://​www​.thec​cc​.org​.uk/​w​p​-​c​o​n​t​e​n​t​/​u​p​l​o​a​d​s​/​2​0​2​0​/​1​2​/​F​i​n​a​n​c​e​-​A​d​v​i​s​o​r​y​-​G​r​o​u​p​-​R​e​p​o​r​t​-​T​h​e​-​R​o​a​d​-​t​o​-​N​e​t​-​Z​e​r​o​-​F​i​n​a​n​c​e.pdf

Data on the impact of the British Business Bank can be found at http://​data​.par​lia​ment​.uk/​D​e​p​o​s​i​t​e​d​P​a​p​e​r​s​/​F​i​l​e​s​/​D​E​P​2​0​2​0​-​0​6​1​3​/​A​n​n​e​x​_​A​-​B​B​B​_​A​n​n​u​a​l​_​R​e​p​o​r​t​_​a​n​d​_​A​c​c​o​u​n​t​s​_​2​0​1​9​_​2​0.pdf

Data on the contribution of SMEs to the UK’s carbon emissions can be found at https://​www​.cor​po​rate​lead​er​s​group​.com/​r​e​p​o​r​t​s​-​e​v​i​d​e​n​c​e​-​a​n​d​-​i​n​s​i​g​h​t​s​/​n​e​w​s​-​i​t​e​m​s​/​s​m​a​l​l​-​a​n​d​-​m​e​d​i​u​m​-​e​n​t​e​r​p​r​i​s​e​s​-​s​m​e​s​-​a​r​e​-​v​i​t​a​l​-​t​o​-​u​k​-​d​e​c​a​r​b​o​n​i​s​a​t​i​o​n​-​h​o​w​-​d​o​-​w​e​-​m​e​a​n​i​n​g​f​u​l​l​y​-​e​n​g​a​g​e​-them

If you value great public services, protecting the planet and reducing inequality, please support NEF today.

Make a one-off donation

£5 £10 £25 £50 £100

Make a monthly donation

£3 £5 £10 £25 £100