Earth Day: London’s spirit of innovation can lead the net zero push

Michael Mainelli is the lord mayor of the City of London

The UK can build on its financial and climate leadership to become a global centre for transition finance

COP28 ended with a landmark deal calling on all nations to “transition away from fossil fuels in energy systems, in a just, orderly and equitable manner”. Having attended and experienced the buzz of what was the largest UN climate summit event to date, with some 85,000 participants, I welcome this historic moment.

However, we are only at the first step in a long and arduous process. What does a “transition away” mean in practice and how will we fund it? 

Estimates show that the world needs an annual commitment of $3.5tn a year to make some headway in realising net zero goals by 2050.

Government finances alone will not even scratch the edges of that figure – private finance has a crucial role to play in the transition to net zero.

London has long had a strong track record of mobilising its finance centre to provide innovative solutions to the threat of climate change. 

On the back of the creation of carbon emissions trading markets more than 25 years ago at COP3 in Kyoto, the City of London Corporation helped to found the UK Emissions Trading Group in 1999.

This organisation played an integral role in laying the foundations on which the UK and the EU emission trading systems were built. 

During the 1990s, emissions trading led to the enormous reduction of acid rain, and today 23 per cent of global carbon emissions are covered by a credible emissions trading markets.

According to the latest figures from the London Stock Exchange Group, the value of traded global carbon markets for carbon dioxide permits reached a record €881bn last year.  

Additionally, in 1952 the City of London Corporation was the first government body in the world to introduce a Clean Air Act legislating a ban on the production of smoke in the Square Mile, with the UK government following two years later.

Our financial centre has been a trailblazer in developing the initiatives, legislation and products needed to drive climate action. Following COP28, our boldness and innovation are necessary again.

The UK government, in its updated green finance strategy, commissioned a review into growing the market for transition finance in the UK, for which the City of London Corporation is hosting the secretariat.

The review, launched this year, will focus on how the UK can become a global centre for transition finance, building on existing innovations, initiatives and standards, in the UK and globally. 

The City of London Corporation is also hosting the Net Zero Delivery Summit in June, designed as a mid-point between each COP to maintain momentum.

NZDS will give global financial and professional services an opportunity to come together with policymakers and take stock of the actions committed to at COP28, while looking forward to COP29, to be held in Azerbaijan later this year. 

With the best minds in green finance and climate strategy gathered in London, there are several themes our spirit and culture of innovation can support. 

First, we know that by 2030 nature loss could cause global GDP reductions of £2.1tn globally each year. Given that nature is our greatest asset in the fight against climate change, we must pinpoint how businesses and governments align finance with nature and biodiversity goals.

The UK has a significant opportunity to establish itself as a global capital for nature finance, with key sectors such as insurance having a critical role to play in the transition towards a nature-positive future.  

Second, green technologies are vital to reach net zero. How we leverage advances in artificial intelligence and digital technology will drive the allocation of capital towards sustainable outcomes. To develop and scale such green technologies, private financing is crucial. 

Third is how we continue to grow and enhance the role of carbon markets in the transition to net zero.

Despite the ability of carbon markets to channel finance to critical projects across the globe, 2023 saw a decline in demand for voluntarily purchased carbon credits.

To address this issue, initiatives to support standardisation, integrity and transparency in the market must be cemented, alongside the building of an environment where new innovations can thrive.  

London’s innovation has resulted in the success of its global financial centre, and made it one of the leading tech markets in Europe and a captivating city for arts and culture.

The spirit of this innovation should now be harnessed to solve the world’s climate crisis.