UK green policy delays ‘undermine investor confidence’ in reaching net zero

'Investors need consistent policy signalling to catalyse the net-zero transition'

The sustainable investment community has expressed worry and frustration that UK prime minister Rishi Sunak’s plans to delay or relax net-zero policies will undermine business and investor confidence in the country, and set it behind green policies being accelerated in markets such as the US and EU.

Sunak today announced sweeping changes to the UK’s net-zero strategy, including a delay on the ban on sales of petrol and diesel cars from 2030 to 2035, slowing down the decommissioning of gas boilers and a moratorium on new energy efficiency regulation.

In his statement, Sunak said he felt a need to be honest about the cost of net zero, and that it was not right to impose more costs on working people.

However, with UK Sustainable Investment and Finance Association members recently writing an open letter to Sunak warning that the UK is at risk of losing its head start on sustainable finance, ESG Clarity garnered the opinion of UK-based investment experts to find out the consequences of these changes.

A misjudgement of global market trends

James Fotherby, senior policy officer at Aldersgate Group

A significant amount of the investment required to reach net zero will be delivered by the private sector. But, for investors and financial institutions to commit to multi-billion-pound investments in the UK green economy, they require long-term and stable policy.

These announcements, which effectively delay long-standing policy commitments such as the 2030 phase-out date for the sale of new petrol and diesel vehicles, will only serve to further undermine investor confidence in the UK’s commitment to achieving net zero.

These announcements also misjudge global market trends. At this moment, the US, the EU, and others are accelerating – not slowing down – efforts to decarbonise. Investors and financial institutions will now instead look to these markets when making their investment decisions.

At odds with the Climate Change Committee

Julia Dreblow, founder of SRI Services

What we are hearing from the government is deeply worrying, and frankly infuriating given all the work that went into deciding those policies and the fact we are in a climate emergency. This summer’s floods, fires and storms tell us that our efforts to address climate change are progressing too slowly and that things could get far worse.

The government being at odds with the Climate Change Committee, their official advisers on climate change, is also a major worry, as is the message this would send to business. From a UK and business perspective, the first bullet point of the executive summary in the government’s Mobilising Green Finance strategy in March this year points to why this all matters. Climate change, biodiversity loss and environmental degradation are indeed transforming the global economy, so it is crucial that we lead rather than follow.

Portrays a lack of ambition and clarity

Gemma Woodward, head of responsible investment at Quilter Cheviot

The news that the government is going to significantly downgrade its climate change commitment means the burden is falling squarely on private industry. This lack of ambition and clarity is clearly leaving some very frustrated, and for investment companies it leaves the impression that it is their problem to solve, rather than working together with government.

For some time, many UK companies have been reporting in line with the four pillars of Task Force on Climate-related Financial Disclosures, namely: governance, strategy, risk management, and metrics and targets. Although the government is finally rolling this out across the public sector, it has subsequently decided that much of the action can wait.

Without clear government policy and commitment to a climate transition, the ambition and trajectory of change within the UK will be severely diminished. From a responsible and sustainable investment perspective it has to be business as usual, however this calls into the question the future decision making of investors and allocators of capital when there is no clear impetus from government. Business investment is increasingly turning to transition projects, and with the US and EU unveiling huge incentives, the UK risks being further left behind from a capital markets perspective and present itself as a place that is not open for business.

‘Committing to a moveable goalpost is a major business risk’

Tara Clee, ESG analyst at Hargreaves Lansdown

Global asset managers, wards of trillions of pounds of retail and institutional investors’ savings, have committed to increasingly investing a portion of their assets in climate solutions and announced strict engagement frameworks to support businesses across all sectors to reach 2030 interim net-zero targets. The market has been directing capital to the net-zero transition and has been working in good faith against the government’s climate ambitions. These changes send a message that nothing is set in stone, and committing in earnest to a movable goalpost could be a major business risk.

The UK government has a legal obligation to reach net zero and businesses and investors need consistent policy signalling in order to catalyse – and profit from – the net-zero transition.

Sunak’s ‘Truss’ moment?

Seb Beloe, partner and head of research at Wheb Asset Management

Investors now have personal lived experience of a changing climate; extreme weather at home, on their holidays and in news headlines. Climate change is part of their reality.

While Sunak’s move to delay multi-decade-agreed deadlines on the net-zero transition is clearly unhelpful, it does nothing to change the direction of travel. It may give laggards more time to prevaricate – pushing up costs in financial and environmental terms – but the transition to zero carbon is still inevitable.

However, this is not a moment to catastrophise on what is likely to be another policy blip. In fact, this announcement by Sunak may even prove to be his ‘Truss’ moment, in which all stakeholders – the investment community, markets, public opinion and even his own party – simply say no, and coalesce around a strengthened commitment to the reduction of fossil fuels and speedy transition to a low-carbon, sustainable economy.

It is undeniable that the companies enabling this transition are still destined to be the industrial powerhouses of the future.