The decarbonisation of the UK economy is now more urgent than ever. Fiscal policy, change in consumption norms and regulation all have a key role to play in addressing the climate crisis. But a rapid decarbonisation will not be possible without a radical transformation of the financial system as a whole.
Our financial system provides many loans to carbon-intensive activities, invests only partially in green projects and supports our unsustainable ways of living. In short, our financial system is not fit for purpose. What we need is a financial system that can support a Green New Deal. So what exactly would that look like?
First, the financial system should have green banks at its core. This shouldn’t be limited to a re-nationalised Green Investment Bank. A financial system intent on decarbonisation would need to include small banks that have ethical targets, support local communities and are active in financing projects in renewables and energy efficiency. A strong support of these banks could potentially reduce the power of the larger banks that provide the vast majority of carbon-intensive loans.
