Navigating changing tides: The UK's opportunity in green finance 

Green bonds have seen explosive growth over the past decade, rising from $41bn to nearly $700bn in global issuance. But in 2025, that momentum has slowed, with S&P Global data pointing to a cooling market - likely driven by ongoing geopolitical tensions and economic uncertainty.

The most notable shifts can be traced back to the White House. On January 20, President Donald Trump signed an executive order withdrawing the US from the Paris Agreement - part of his wider campaign against so-called "woke capitalism." The effects of this have been felt worldwide.

Meanwhile, this week, The Net Zero Banking Alliance (NZBA), a UN-backed coalition of over 120 global banks, voted to loosen its commitment to the 1.5°C global warming target, redefining its commitment to the institutional “well-below 2°C”. This comes after several key members left the Alliance earlier this year, including the six largest US banks, followed by five major Canadian banks.

Member banks voting for this shift have cited difficulties with coordination, slower-than-expected policy progress and fiduciary risks, all of which echo the wider pull-back on climate ambitions across the sector. Indeed, banks and other financial institutions have faced significant hurdles in balancing profitability with sustainability commitments as well as accusations around greenwashing. 

The decision hasn’t been met without backlash. Dutch lender Triodos Bank has announced its decision to leave the alliance. Climate advocates also warn the new policy will undermine global efforts to limit warming to 1.5°C - the critical threshold to limit the most catastrophic effects of climate change, according to scientists. 

A new report by BloombergNEF underscores this point: today, low carbon projects are financed at a 1:1 ratio with fossil fuel ones, far from the 4:1 evidence suggest is needed.

Green finance thrives on long-term certainty, so when governments and institutions backpedal on their climate commitments, there is a greater perceived risk for investors, who in turn will be less likely to allocate capital to green projects. 

As ESG is a relatively new phenomenon it was bound to have growing pains. Stuart Kirk former Head of Responsible Investment at HSBC, aptly stated in the Financial Times  “Sustainable Finance 1.0 was flawed.”  Kirk suggests the need to move from values to strategy. 

Could the UK be well-positioned to lead?

The UK’s Green Finance Strategy aims to align private sector financial flows with net-zero targets and strengthen the UK's position as a global leader in green finance. 

This week, the City of London Corporation announced plans to host the fourth annual Net Zero Delivery Summit on 23 June 2025.

For the first time, the event is scheduled during London Climate Action Week (LCAW) to “underscore London’s commitment to innovation in sustainable finance”, according to a news release this week from the City of London. 

The Summit also serves as a mid-point between last year’s COP29 the so-called ‘Finance COP’ and COP30 later this year in Brazil, where climate finance is set to be a core theme.

With sentiment towards green finance weakening in the US, this year’s LCAW feels more important than ever. Traditionally, investors looking to engage with green finance might prioritise New York Climate Week, but this year could mark a turning point. As attention begins to shift away from the US, the UK has a real opportunity to step up.

At the same time, China’s decision to list its first sovereign green bond in London could signal both renewed UK-China cooperation as well as international confidence in the City's global standing in sustainable finance.

But rhetoric can only go so far, and credibility still matters. 

The UK recently pushed back its ban on petrol and diesel cars, now allowing hybrids until 2035, in what many see as a response to trade pressures and Trump’s new tariffs. There are also concerns as the government relaxes plans to phase out gas boilers and waters down energy efficiency rules for rented homes. These could both hinder the UK’s progress towards meeting its 2050 net zero targets and undermine the country’s green finance credentials.

Against a backdrop of shifting strategies by global economic powerhouses and a stagnant domestic economy, the UK may find itself compelled to scale back its ambitions. However, the long-term direction is already set. The decline in sustainable bonds issuance from the US, is part of a trajectory we were already seeing - Europe remains a leader with over 40% of expected issuance this year and its financial institutions are less likely to backtrack on green initiatives. 

Despite challenges from across the pond, the UK still has an opportunity to lead in the next phase of sustainable finance.