The results of the UK election “could set capital in motion that will accelerate opportunities in some areas while suppressing growth in others”, according to Kelly Hagg, head of responsible investing business development at Nuveen Investment Management, with sustainable investing a key point of differentiation between all political parties.
As the planet nears critical climate and nature-related tipping points, the next government “will play a crucial role in steering us towards a sustainable future”, added Dominic Rowles, lead ESG analyst at Hargreaves Lansdown.
“Getting to net zero by 2050 is an objective shared by both major parties, but while they agree on the destination, the way we get there is hotly contested.”
Party policies
The recent Conservative government appeared to rein back sustainability commitments, and their manifesto commits to continuing the licensing of oil and gas production in the North Sea to “protect jobs and ensure energy security”. They also plan to retain the windfall tax until 2028-29 unless prices normalise sooner. The party aims to accelerate the transition to renewables by tripling offshore wind capacity, building a new carbon capture facility, expanding nuclear power and adding new gas power stations to support renewables.
Additionally, the Conservatives plan to implement carbon pricing on imports of steel, iron, aluminium, ceramics and cement to ensure a level playing field with countries not taking action on climate change. They also propose reforming the Climate Change Committee to focus on household costs and energy security.
In contrast, the Labour Party have proposed a mandate to accelerate UK financial institutions and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.
Their flagship pledge, meanwhile, is to create Great British Energy, a publicly-owned clean power company aimed at boosting energy security and cutting bills, with the goal of fully decarbonising the electricity grid by 2030. They plan to fund this by increasing the windfall tax on oil and gas companies and removing loopholes that allow oil and gas companies to lower their windfall tax bill.
Labour also proposes severe fines for water companies that pollute rivers and new regulatory powers to block bonuses until issues are addressed, and said they will not approve new North Sea projects, avoid new coal licenses, and ban fracking permanently.
Other pledges include reinstating the 2030 ban on new petrol and diesel vehicle sales, which the Conservatives moved to 2035 last year, and supporting a carbon border adjustment mechanism to help protect British industries during the transition to net zero.
Addressing the policies of other parties, Rowles added that, while only two parties are likely to form the next government, smaller parties could play crucial roles if no party secures a majority. These parties will also hold the government accountable and contribute to key debates. Their approaches are incredibly diverse – from Reform UK, that wants to scrap the UK’s net zero target altogether, to the Green Party, that wants to reach net zero at least a decade earlier than the current 2050 target.
Reaction
Planet Mark’s director of policy and partnerships, Andrew Griffiths, said: “It’s great to see the Labour manifesto highlight renewable energy, nature restoration and net zero are an opportunity for the UK economy, not a burden. From a purely policy perspective, the manifesto demonstrates far greater ambition and clarity on their commitments to advance our net zero and clean energy transition.
“Additionally, the reversal of damaging policies implemented by the current government that placed restrictions on the Bank of England being able to consider climate change in its mandates is welcome, as it allows the experts to progress without having one hand tied behind their back.”
Likewise, James Alexander, CEO of the UK Sustainable Investment Forum (UKSIF), commented: “We welcome the Labour Party’s commitment to green investment in the UK. It is essential the government works closely with the private sector to unlock the huge sums of investment waiting in the wings. As we stand now, a lack of clarity and certainty on the long-term strategy for the automotive sector, for example, is destroying investor confidence, driving much-needed private capital overseas and limiting necessary progress on the decarbonisation of the transport sector.”
In contrast, Griffiths said that although the Conservative manifesto brings forward some welcome policies for tripling offshore wind power, cutting grid connection times and investing in nuclear power, its overall policy messaging “continues to treat net zero as if it is a cost the UK economy must bear” and not an investment opportunity to be seized for a cleaner, healthier and more prosperous society.
With SFDR in evolutionary limbo and the US facing an uncertain Presidential election, Hagg further added that the UK “is in pole position to drive global product disclosure regulation into alignment” with its SDR and take on ESG ratings disclosure to boot.
“Moreover, while the UK continues its post-Brexit policy path of regulatory divergence from the European Union, the UK government might also emerge from behind as a leader on sustainable finance as the recent EU election results point to the European Grean Deal losing some steam as right leaning parties gain strength”, she continued.
“The FCA understands that to grow the UK’s capital markets and continue to flourish as a financial services hub, it can leverage its ability to move quickly and make policy that the rest of the world will have to account for, or adopt, in their own sustainable finance policy efforts.”
Missed opportunities
However, all parties missed some clear opportunities. According to Griffiths, what’s omitted from both manifestos is a clear commitment to support businesses, particularly SMEs, on their net-zero journeys.
“Initiatives through grants and tax incentives could be used to massively accelerate and support British businesses to reduce the costs of investing in energy efficiency measures, on-site renewable energy generation and innovation in materials and manufacturing,” added Griffiths.
“This feels like a missed opportunity, as accelerating business investment into these things will ultimately bring down the costs for everyone, by helping bring efficiencies of scale, availability and technological advancement.”
