Vision for Economic Growth — a roadmap to prosperity 37 Big move #7 Scale high-integrity, innovative markets and be at the forefront of new investment opportunities Sustainable 昀椀nance markets are innovating fast. for the potential role of regulation around VCMs, building on the proposals put forward by the How quickly new approaches develop — such as those 105 Skidmore Review. related to the voluntary carbon markets, nature, and Care should also be given to impact investing — will be dependent on enabling provide the right incentives and policy frameworks conditions to encourage their growth. In many cases, 106 for participants across the VCM value chain, so this will require the UK to leverage its deep expertise that they promote, purchase and sell high-integrity and experience in building and integrating world-credits and that these do not come at the cost of class marketplaces underpinned by fair laws, credible emissions reductions. Collectively these e昀昀orts standards, enabling policies and incentivised action have the potential to drive signi昀椀cant momentum for across the value chain. It may also require new types scaling the liquidity and growth of carbon markets. of specialist expertise as 昀椀rms move to embrace new • Scale-up other high-integrity nature markets investment opportunities, such as those related to 107 and support approaches to protect natural capital. natural capital. In many cases, fostering the growth of There is a strong argument to be made for protecting these markets while they are still nascent will heighten natural capital, as nature-based solutions can achieve UK competitiveness, making the need for action all the an estimated 37% of the mitigation needed until more urgent. Key actions include:108 2030 to meet net zero targets. Uncertainty around • Develop an all-encompassing high-integrity relevant environmental policy and regulation is just voluntary carbon markets (VCM) ecosystem. one factor impeding the growth of nature markets There is growing acknowledgement that carbon today. If there is to be a thriving nature market based credits can play a role in the removal and o昀昀set in the UK, then the current programme of work of emissions that cannot otherwise be avoided in summarised in the government’s Green Finance Strategy and Nature Markets Framework must be the near term. Currently relatively small — one completed, and an ambitious course set for the estimate put the total market size at US$2bn at the end of 2021 — it has the potential to grow fast. rest of the decade. The planned consultation on 2021 was already a fourfold increase on 2020, nature markets, and piloting new markets, such as the Natural Environment Investment Readiness Fund 104 and by 2030 the market could see rapid growth. 109 (NEIRF) will be crucial. E昀昀orts such as these will help However, organisations can 昀椀nd it di昀漀cult and the market to mature and develop a greater pipeline costly to navigate the market. There are multiple marketplaces and a plethora of guidance on “best of investable projects that will support private sector practice” approaches and principles of use. It is not investment over the long term. always clear that purchasing a carbon credit will These activities can also support 昀椀nancial institutions result in meaningful emissions reductions, and there is concern of reputational damage if a claim participating in “impact investing” activities, whereby Glasgow, host of the COP26 Climate Conference is made improperly. Creating an environment “investments are made with the intention to generate Benefits Key actors (non-exhaustive) positive, measurable social and environmental impact where market actors can have con昀椀dence in the 110 Finally, the UK’s established With the right enabling conditions in place and impactful DESNZ; the Department for Environment, Food alongside a 昀椀nancial return”. integrity of the market; how the use of o昀昀sets may complement their transition commitments; and strengths in insurance can play a pivotal role in supporting mobilisation of government 昀椀scal and policy support, and Rural A昀昀airs (DEFRA); the UK ETS Authority; and accelerating the bene昀椀ts that these new markets will how they should disclose and account for their use the private sector could play a meaningful role in driving FPS Industry Participants; Green Finance Institute; bring. For example, the London market could develop the substantial economic opportunity of VCM and closing Impact Investing Institute; civil society organisations. is key. As a priority, the government can remove insurance products to protect against project failure the 昀椀nancing gap for achieving nature-related outcomes the complexity and barriers that are preventing participation in the market, including consideration or fraud risks.targeted in UK policy, which one estimate puts between 111 at least £44bn and £97bn.