(Bloomberg) -- The UK may not have the appetite or capacity to directly match President Joe Biden’s unprecedented funding for the US energy transition, but it does have a secret weapon of its own in the race to finance the low-carbon economy: a bounty of financial engineers.

The City of London is blessed with bankers, investors and insurers able to structure deals to support the move away from fossil fuels, according to Rhian-Mari Thomas, a former leveraged finance banker at Barclays Plc who now runs the UK government-backed Green Finance Institute (GFI).

The GFI is partnering with a group of UK financial firms, including Aviva Plc and M&G Plc, to develop investment vehicles aimed at accelerating Britain’s efforts to reach net-zero emissions.

The energy transition will necessitate trillions of dollars, mostly from private investors, to decarbonize energy systems, industrial processes and transportation. And with such vast sums at play, a green arms race has begun: The US Inflation Reduction Act, which allotted $369 billion for clean technology investments, is partially an American response to Chinese dominance in low-carbon technologies and supply chains. Some of its more protectionist provisions have also drawn the ire of US allies in Europe and the UK.

“We have to deal with the realities of the balance sheet and the fiscal situation in the UK as it is,” Thomas said. “We don’t have $369 billion to provide tax credits in the way the US has, but what we do have in London and in the UK is one of the deepest pools of private capital in the world.”

The biggest challenge is harnessing all that ingenuity and applying it to “these big existential problems,” she said.

The GFI was set up in 2019 with seed funding from the UK government and City of London Corp. Its most recent initiative is a series of so-called Green Transition Funds, which aim to increase the flow of funding for green projects, starting with electric-vehicle chargers. Future programs may focus on sustainable-aviation fuel and energy-efficiency measures for homes.

Thomas said the funds aim to address two key impediments holding back the flow of money to green technologies: the absence of performance data about new technologies in need of funding, and the lack of incentives to develop sustainable financial solutions when there’s plenty of money in more-established sectors. 

EV chargers suffer from both of these issues. Today about two-thirds of EV charging points in the UK are funded via public grants and long-term financial performance data doesn’t exist, Thomas said.

As a result, GFI is seeking new ways to bring in institutional investors. The cost of building a national network of charging points would total about £20 billion ($25 billion), and using its transition fund structure, UK insurers and pension funds could put up the bulk of the money with the government providing a guarantee of less than £1 billion over a 15-year period.

The government guarantee is essential, as it would lower the risks for private investors venturing into a less familiar sector. So-called blended finance vehicles, where government funds are used to catalyze higher volumes of private finance, are often touted as essential tools in marshaling the necessary funds to fight climate change.

GFI has held talks with the government and the state-owned UK Infrastructure Bank about providing a guarantee, a GFI spokesperson said. No decisions have been made, and the national election planned for July 4 may add some delay. 

The transition funds are being being developed in partnership with the Investment Delivery Forum, a group of UK insurers and pension funds, including Aviva and M&G, that have pledged to invest £100 billion in domestic infrastructure over 10 years with a focus on low-carbon projects. 

Rebecca Lea, manager for investment and climate at the Association of British Insurers, which set up the Investment Delivery Forum last year, said the proposed green transition funds “would set the groundwork for stable infrastructure funding programs with the potential to enable insurance and pension funds to invest in green infrastructure on a large scale.”

Sustainable finance in brief

As if Wall Street’s starring role in the acceleration of global warming wasn’t clear enough from its continued financing of Big Oil, now there’s an even more direct connection. Some of the biggest banks aren’t properly accounting for the risks of doing business with oil and gas companies operating in the globally critical Amazon rainforest, according to a study by conservationists. The report identifies six banks it says are responsible for almost half of all direct financing for oil and gas operations in Amazonia over the past 20 years. They include JPMorgan, Citigroup and Bank of America. The banks have failed to “fully address the adverse impacts of their financing,” the researchers said. The warning comes as global temperatures blast through previous records, pushing the nine-country region that makes up Amazonia closer to environmental collapse. Degradation of the Amazon soared in the first four months of this year due to increasing fires and a lack of preventative monitoring, Brazilian environmental officials said last month. “We are literally living in a rainforest on fire, our rivers are either polluted or drying up,” said Fany Kuiru, general coordinator of the Coordinating Body of Indigenous Organizations of the Amazon River Basin. Global banks “must be held accountable.”

  • A former Goldman Sachs managing director has teamed up with law firm Linklaters and Scope 3 Climate Capital to help develop and promote an alternative to carbon credits.
  • UBS held its first-ever conference dedicated to biodiversity, signaling its ambitions to grow in an area Credit Suisse had targeted for expansion before its collapse.
  • Barclays dropped out as a sponsor of some of the UK’s biggest music festivals after various acts vowed not to participate as antiwar groups call for the lender to sever ties with arms companies that sell to Israel. 

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