LONDON — It's the City of London's turn to see its green ambitions put on ice.

With an election looming this year, Rishi Sunak's Conservative government has already delayed plans to phase out diesel cars and gas boilers. The City, Britain's financial services powerhouse, thought it might be immune — but no such luck.

Two long-awaited, major pieces of financial regulation — a list of what counts as a green investment and tougher climate disclosures for companies — are currently missing in the corridors of Whitehall.

“What we need to do is to keep pressure on government to deliver,” said Chris Hayward, policy chairman at the City of London Corporation. “This is a challenge in a general election year.”

The Conservative Party is desperately aiming to draw a line between itself and the more green-minded Labour Party — which is far ahead in the polls — even if the opposition party, too, has backtracked on some key pledges.

In abandoning green policies, the Tory party wants cash-strapped voters to believe it is on their side, and to avoid being outflanked by other parties on the right on the costs of the country’s “woke” climate goals.

When he was chancellor, Sunak touted green ambitions, calling on the U.K. to be the first "net zero aligned financial center." But as Prime Minister, he's performed a decisive U-turn, and his party is largely behind him, with no obvious green leader remaining in the Conservatives.

It means his government is now shying away from any sustainable rules that could put a burden on business — including for the City.

“A lot of the commitments have been made, but the policy has not been followed through,” said James Alexander, chief executive of the UK Sustainable Investment and Finance Association (UKSIF), which represents green investors.

But it’s not just a case of dilly-dally.

There’s a risk for the City that, without the right rules and regulations, it could fall behind its competitors and miss out on any investment boom.

RIP taxonomy?

It wasn’t long ago that the U.K. was a leading force on how to use the financial sector to combat global warming.

Ex-Bank of England Governor Mark Carney drove the issue forward, setting up the Glasgow Financial Alliance for Net Zero for financial firms committed to transitioning their business away from fossil fuels. Sunak backed him, with a call to "rewire the entire global financial system" for net zero.

As a result, London is still ranked as the top global financial center for green finance.

But when it comes to action, the U.K. is now sandwiched, post-Brexit, between a resistant U.S. on the one hand, and a paper-pushing EU on the other.

The EU has built up a huge rulebook for sustainable finance — to make sure money earmarked for green investments really is being channeled into climate-friendly projects.

“We have built a cathedral of regulations in the EU. But at this stage in the U.K. there are no real foundations,” said a European official, granted anonymity to speak freely.

Brussels’ top officials have overtly said they want to lead the way globally on green financial rules and export them around the world.

One of the biggest and most controversial pieces of legislation has been the EU taxonomy — a lists of what counts as green across different sectors of the economy.

It underpins how the EU financial sector now measures itself — including incoming green ratios for banks, investment fund categories, and a best-in-class label for green bonds.

And the idea is that it will direct cash toward investments that are truly green — which immediately created a huge battle in Brussels over what should count as environmentally friendly.

But the taxonomy is also exactly the type of EU rulemaking that many Brexit supporters loathe — a prescriptive list of what is acceptable.

Still, an expert group in the U.K. concluded in 2022 that the best thing would be for Britain to “onshore” the EU’s version with a few tweaks.

“We would be missing out if we lose leadership on certain areas, such as the taxonomy,” said Ryan Jude, programme director for the green taxonomy at the Green Finance Institute, which housed the expert group.

Yet despite professed commitments from the U.K. Treasury, including a pledge to consult in Fall 2023, there has been delay after delay — and a growing fear that it just won't happen this side of an election.

A government spokesperson said the U.K. remains "committed to delivering on these goals, including through delivering a U.K. green taxonomy — on which we expect to consult shortly.”

Go-slow committee

As well as the missing green list, the U.K. is behind on climate disclosures for companies.

Investors argue they can’t channel more money into green projects without more detail from businesses themselves.  

And there’s an international effort to get companies to disclose uniform information on how climate change is affecting their business, like they do for their bottom line.

The EU has again gone further — requiring big companies to disclose the impact of climate change, as well as their own carbon footprint — while the U.S. has rolled back amid pressure from business.

The U.K. committed to use the international rules as a basis for updated sustainability disclosures by July this year.

But, again, the plans have ground to a standstill — this time in the Department for Business and Trade. A committee set up to sign off on final standards is a “go-slow” intended to hinder adoption, according to UKSIF’s Alexander.

“Six months on, it’s still not got a chair confirmed,” he said. “It's clearly working to a slow timetable.”

Plus, if the committee eventually gives the plans the green light, it’s over to Business Secretary Kemi Badenoch, touted as a potential future leader of the Conservative party, for final sign-off. Badenoch has been vocal about her concerns over the costs of transitioning to a green economy.

The department declined to comment.

Investment push   

Still, not everyone in the City believes the way to green nirvana is through regulation.

“We don’t see a use case for the taxonomy,” said a banking lobbyist, granted anonymity to speak freely. “Parts of the Treasury understand there is limited utility. No. 10 understands there is limited utility.”

And there's also plenty of backlash in the EU, as far-right parties attract voters ahead of the bloc's June elections, partly by campaigning against the burden of green policies and zeal of some green advocates.

But the City does want to get in on any green investment boom — as economies adjust to the reality of climate change and governments seek to harness private money to reach their goals.

The current government’s backtracking on climate pledges and Labour’s flip-flopping on its own green spending plans aren’t helping investor sentiment.

"My message there, to all the political parties, is what the private sector needs, what investors need, is they need continuity, and consistency, and clarity of policy," said the City of London Corporation's Hayward.

“If you keep moving the goalposts, you do not inspire confidence in the private sector."

And London may struggle to maintain its green finance crown if its leaders aren't equally as committed.