Is the UK’s Green Day Initiative Falling on Deaf Investor Ears?

The UK government released more than 2,800 documents totalling over 2800 pages on March 30. The Net Zero Growth Plan was one of them, as well as the revised Net Zero Strategy by the UK government, an Energy Security Plan, and a new Green Finance Strategy.

The announcements, originally titled “Green Day”, came at a time when the EU and the US launched initiatives to attract billions of dollars in investments in green technologies. This put the UK into what some have called an international subsidies’ race. In addition, such initiatives inspire businesses from different industries to invest in becoming eco-friendlier. Let’s take the Lottoland lottery provider, for example. Lottoland has taken crucial steps towards achieving its target of becoming carbon neutral by 2040 by investing in measures that tackle the carbon emissions that result from its energy consumption, business travel, and water usage.

Delaying net zero actions has high costs and serious implications for UK’s competitiveness in the global market. It also impacts its ambition to be a net-zero financial centre.

Investors have been pointing out for a long time that a policy environment supportive of net zero could be a major economic driver. For example, McKinsey estimates that the UK’s businesses could earn up to PS1 trillion by 2030 from supplying goods and services for the global net zero transformation.

The government acknowledges the importance of private financing flows to help achieve climate goals in the UK. It claims that its policies have been “tailored” to ensure private investment. Does it go far enough, though?

UK Green Taxonomy is still uncertain.

The UK has already fallen behind in this important cornerstone of sustainable financial policy. The taxonomy was originally due on December 20, but investors are clearly in need of it, and EU regulation fills the gap.

According to the Green Finance Institute, the EU taxonomy is complicated and expensive, but investors are forced to use it because there is no UK equivalent. Of the UK’s 2000 listed companies, nearly 80% fall under the scope of EU taxonomy reports as part of the Corporate Sustainability Reporting Directive.

If the UK is to be a leader in the green investment conversation, it must release a science-based green taxonomy that businesses can use by the end of 2023. If the UK does not act, it will likely fall behind on green investments and be forced to react rather than shape the rapidly evolving global sustainable financial agenda.

Investors must have mandatory transition plans

The investment community and the recent net-zero review by MP Chris Skidmore called on the UK government to develop high-quality and comparable disclosures for listed and private companies. We welcome the UK Transition Plan Taskforce’s commitment to these disclosures.

Disclosures are only useful if all large companies have to comply.

Detailed Sector Pathways

Sector pathways must be used to anchor company-level plans of transition that will provide clarity about how the UK as a whole transition to net zero. Although there were some positive developments towards the UK’s stated goal of becoming the first financial centre aligned to net zero, the latest releases lack the details investors need to make this happen.

In 2021, the UK government said it would publish “A Transition Pathway for the Financial Sector” by 2022. However, this has not yet been done.

The government has also committed to publishing detailed decarbonisation paths for key sectors in the UK economy by the end of this year. The investment community is eagerly anticipating these pathways, and they must be robust.

Investors need clear and coherent policy frameworks in order to unlock investment opportunities that address climate change and close the finance gap.

These sector pathways will help the UK to achieve its potential as a magnet of green finance. They should also provide the clarity in policy needed to reorient the capital towards the key sectors of the UK economy. So, it is important to show what a realistic pathway for decarbonisation looks like sector by sector.

Progress in the real economy

Transition finance’s fundamental goal is to reduce greenhouse gases. Recent announcements by the government about the real economy were few and far between, with easy wins missed. Onshore wind is still held back by excessive bureaucracy, and insulation measures need to be expanded much more in order to meet the government’s targets.

The announcement of PS20bn to support hydrogen and carbon storage and capture (CCS) is welcomed as this will be crucial for decarbonising sectors that are difficult to reduce. In addition, long-term plans announced for solar expansion to 2035 should be welcomed.

How can the UK Government Turn the Country into a Hub for Green Investment??

Unfortunately, the UK has not been able to provide the clarity that investors require to invest in Net Zero, and this is eroding the UK’s competitive advantage as an international hub for green financing.

The ‘Green Day,’ despite the many releases and announcements, did not create the policy environment nor the ambition necessary to catalyse the investment needed in the UK’s net zero transition. The documents promised further consultations as well as more details, but there was no additional funding to help make the UK’s goals for climate change a reality.

The investment community now needs detailed sectoral pathways, mandatory climate disclosures, and transition plans. Private investment will not reach its full potential until the government provides these guidelines.