By Eliette Riera, Head of UK Policy, PRI
After years of leading on climate and green finance policies, the UK has slipped behind key regions such as the EU and the US. The coming months will show whether the current government is serious about sustainable finance – or is resigned to being an also-ran in the race to net zero.
The UK has just announced its Spring Budget, setting out what Chancellor Jeremy Hunt called the four pillars of the UK’s industrial strategy: enterprise, employment, education and everywhere. The government is now preparing for its upcoming Green Day, when we expect the much-delayed update to the Green Finance Strategy, the updated Net-Zero Strategy and a response to the Chris Skidmore Net-Zero Review. Investors will be able to assess whether or not the government is indeed taking a joined-up approach to the design and implementation of key sustainable policies (financial, fiscal, industrial). If the ambitious green strategies promoted prior to COP26 in Glasgow continue to be lacking, we encourage engagement with policymakers to return the UK to a leadership position on climate through coherent policy proposals aligned with a 1.5°C-enabling system.
What is most apparent from the early challenges and successes of other jurisdictions is that a siloed approach to individual issues – which the UK has seemed to favour over the past year – is not sufficient to match the scale and urgency of the crises that we are facing. We need a whole-of-government approach to address energy security, drastically reduce emissions and dismantle real and perceived barriers to responsible investment.
In the face of the cost-of-living crisis, the levelling-up agenda and demands from energy-hungry sectors, the government’s response has often been ad-hoc and scattered. Setting aside the vision of 2021’s Greening Finance Roadmap, the government has reaffirmed its support for new oil and gas developments, approved a new coal mine, and is considering fiscal support for energy-intensive industries. Further evidence of policy failures come from fossil fuel companies, which are lowering their climate targets in the face of record profits, while green energy companies are struggling to finalise contracts for new offshore generation projects. Some are even considering refocusing their investments to the US, where the Inflation Reduction Act has unleashed attractive subsidies for sustainable technologies.
The UK, which has historically boasted cross-party consensus on sustainability issues, has fallen far from pole position since hosting COP26. In 2008, a Labour government enshrined the world’s first climate target into law, underpinned by then ground-breaking commitments to 5-year carbon budgets. In 2014, the coalition government introduced the Contracts for Difference, which played a key role in kick-starting the decarbonisation of the UK’s power system. In 2019, the Conservative government increased its climate ambition to a 2050 net-zero target and published an ambitious Green Finance Strategy, a cross-government approach to greening the financial system and financing green investments. Our own analysis of the legal framework in the UK highlighted that there are few barriers to investing for sustainable impact, and that some simple clarifications from policymakers could unlock even more widespread responsible investment practices.
Despite some strong features, such as the highly respected, independent Climate Change Committee, which has now been replicated in several countries, and the Transition Plan Taskforce, created by then-Chancellor Rishi Sunak, UK climate policy has become a casualty of the instability in government over the past year. While Number 10 turned into a revolving door for Cabinet Ministers and Prime Ministers, key policies planned for 2022 faced, at best, delay, while the EU, US, and other regions pressed ahead with financial and green reforms.
The long-awaited Financial Conduct Authority’s consultation on sustainability disclosures should provide some welcome regulatory clarity by the end of June. The update to the 2019 Green Finance Strategy, initially intended for publication last year (following a call for evidence which closed more than 8 months ago), should finally be published this month, and hopefully include clarifications over the UK’s approach to a sustainable taxonomy. The newly de-merged Department for Energy Security and Net Zero will need to publish an updated Net-Zero Strategy, following a successful legal challenge last year.
In its policy development inputs, the PRI has consistently called for a clear and coherent approach to policymaking. We highlight our key recommendations and publications in our most recent mapping of PRI findings against the outcomes of Chris Skidmore’s Net-Zero Review, which set out to assess how the UK could meet its net-zero commitments “in a way that is pro-business and pro-growth.” We encourage investors to use the mapping tool to help gauge whether UK government policy is fit for purpose in a time of climate crisis – and engage accordingly.
While the UK seeks to reset its relationship with the EU, and work ever more closely with the US, continued engagement from investors with civil servants, regulators and Ministers will remain key. We encourage investors to call for strong and credible signals that every financial, fiscal, or industrial policy going forward will have sustainability at its core.
The PRI blog aims to contribute to the debate around topical responsible investment issues. It is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view.