From the moment Boris Johnson left COP26 in Glasgow, some commentators have raised questions about the government’s ongoing commitment to climate action. While ministers had spent the two years preceding the delayed climate conference peppering speeches with references to net zero, there is concern in some quarters that they have since become more reticent to discuss climate change.
But the UK’s 2050 net-zero target is regarded as among the more ambitious in the world, and its government must continue to display global leadership and, through climate diplomacy, encourage other countries to do the same. And although the government has been relatively quiet of late on this issue, for those of us working in investment management there is no doubt policymakers are pursuing a deliberate policy agenda aimed at making clear progress towards net zero.
See also: – UK government ‘lacks clarity’ on route to net-zero financial centre
Lacklustre strategies
Recently it’s been argued that the energy supply issues that follow from the war in Ukraine and sanctions on Russia may cause a need to reassess the UK’s commitment to its net-zero target. Similar arguments were made in relation to the cost of living before this war began. Conservative MPs have formed the Net Zero Scrutiny Group, Nigel Farage has tentatively launched a campaign for a referendum on net zero, and the Conservative Party chair, Oliver Dowden, told his party’s spring conference that voters wanted to see “a bit less net-zero dogma”.
Against this background, the department for business, energy and industrial strategy published the British Energy Security Strategy in early April. The strategy sets out how the government plans to provide greater energy independence by generating more power in Great Britain. The strategy was notable for its openness to increased oil and gas exploration in the North Sea and relatively limited suggestions to reduce energy demand. While the strategy also aims to provide secure, clean and affordable sources of energy and describes progress towards net zero as “fundamental to energy security,” new exploration in the North Sea and insufficient action to reduce fossil fuel use will only result in the UK burning through more of its remaining carbon budget.
See also: – UK energy strategy misses quick, clean fixes
The Chancellor has also written to the Financial Conduct Authority (FCA) to recommend that the regulator should have regard to the government’s energy security strategy “where practical and relevant”. However, the Chancellor’s new advice, implying the FCA should balance environmental and energy priorities, should make no material difference to the regulator’s existing remit to have regard to the government’s commitment to a net-zero economy by 2050.
Ambitious taskforces
The Chancellor announced at COP26 the creation of a new Transition Plan Taskforce as part of the UK’s ambition to be the world’s first Net Zero Aligned Financial Centre. The taskforce has now been established and will make recommendations for a Transition Plan Disclosure Framework and prepare detailed sectoral Transition Plan Templates focused on real economy sectors.
See also: – UK creates climate transition taskforce
The introduction of transition plans is viewed as a logical step after the introduction of mandatory Taskforce on Climate-related Financial Disclosure reporting and will form a part of a new Sustainability Disclosure Requirements regime. The taskforce will also seek to align its work with outputs on a green taxonomy stemming from the independent advice of the Green Technical Advisory Group. Alongside these initiatives, the FCA is now working with an expert advisory group to provide independent advice on the development and implementation of new sustainability-related financial disclosure requirements and a sustainable classification and labelling system for investment products.
Limiting the damage from climate change must be at the heart of the UK’s long-term plan for economic growth, and the government still has much work to do to provide clear and actionable signals now on the nature and speed of the transition in each sector of the wider economy.
Actions outlined above could have a substantial effect on the way investment decisions are made and boost the UK’s efforts to transition to a net-zero economy.
