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Shadow City minister Tulip Siddiq has announced that a Labour government plans to secure an additional £10 billion per year from banks and insurers to invest in the clean energy industry in Britain.
Siddiq revealed that Labour is exploring the use of the covered bond market to direct more funds towards wind farms, hydrogen, and other green infrastructure projects.
Covered bonds are a type of financial security that typically have backing from a selection of mortgages, with an added guarantee from the issuing bank.
The Labour proposal involves requesting the Financial Conduct Authority (FCA) to modify the sector’s rules to incorporate green infrastructure, following Denmark’s example.
Labour’s aim is to establish Britain as a leading clean energy nation by 2030. This ambition comes in response to a warning from the Climate Change Committee, which has criticized the UK’s slow progress in tackling climate change.
Siddiq stressed the importance of partnering with the City to drive the economy, stating that many stakeholders are eager to support the green agenda but lack the means and confidence to do so.
The introduction of green covered bonds would offer banks and investors a secure and cost-effective way to finance existing energy-related infrastructure projects. Labour is in discussions with the FCA to ensure the practicality of this new system.
Typically, covered bonds have higher credit ratings and lower funding costs compared to unsecured debt, making it easier for banks to access long-term finance that can be lent to clean energy initiatives.
Under Labour’s proposals, institutions like insurers would be able to purchase these bonds and invest in sustainable projects, knowing that the assets back them.
While some EU countries have already issued “green covered bonds,” these are usually based on mortgages for environmentally friendly properties rather than financing renewable energy ventures.
Mike Eakins, Chief Investment Officer of Phoenix Group, expressed intentions to invest up to £40 billion in sustainable assets and welcomed the prospect of a green covered bond market.
Siddiq criticized the government’s sluggishness in implementing green initiatives. She specifically highlighted the delay in Solvency II reform, which aims to allow insurers to invest in a broader range of assets, including green finance. She also voiced concerns about the possibility of funds being sent overseas instead of being invested in the UK.
Siddiq acknowledged concerns about the mortgage market and escalating borrowing costs but defended the banks, attributing the economic crash to the Tories rather than financial institutions.
Furthermore, Siddiq defended the banks, stating that the government should bear some responsibility for the failure to provide equivalent returns to savers while protecting profit margins. She also expressed reservations about the “Edinburgh reforms,” government plans to loosen regulations in the financial services sector, as she believes that ringfencing should remain in place to ensure stability.
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