It is a decisive moment for climate change in the UK. After months of political uncertainty, the new government has a unique opportunity to hit the reset button, and to provide the reassurance, stability and vital impetus needed to drive green finance and achieve net zero by 2050.
This is a pivotal time for investors. Try as it might, the private sector cannot achieve full decarbonisation without public policy support. It is imperative that the government creates a policy environment that makes climate mitigation and adaptation solutions attractive both to investors and to society.
UK falling behind as destination for green finance
While supportive policy has been lacking in recent years, the UK is not a complete stranger to climate leadership. Following the COP26 UN Climate Change Conference, hosted by the UK in 2021, the government instituted a swathe of constructive measures, including an ambitious plan for the UK to become the world’s first Net Zero-aligned Financial Centre. Other initiatives included a UK Green Taxonomy, introduction of the Sustainability Disclosure Requirements (SDR) as a mechanism to eliminate greenwashing in the investment industry, and the creation of the Transition Plan Taskforce (TPT), which set out criteria for a gold-standard transition plan. Progress has also been made across the real economy: in the last decade alone, renewable energy has more than tripled, now accounting for over 40% of total energy use in the UK – a marked step up from 10% in 2015 . Within the same period, the percentage derived from fossil fuels halved, suggesting that with the right policy environment, climate mitigation can thrive.
In the last couple of years, however, much of this momentum has come to a halt, with several flagship policies put on hold. These include the deadline for selling new petrol and diesel cars and the phasing out of gas boilers, both of which were pushed back in 2023 . With the Inflation Reduction Act in the US hoovering money across to the States, and China making rapid advancements in developing its green financial system and markets, the UK has fallen behind other nations as a core destination for green finance.
Stability fundamental to enhancing investor confidence
To make the UK a more attractive investment target, the government must win back the confidence of investors. There are two primary ways to go about this. Firstly, the government must be absolutely clear about their targets and the direction of travel. Investors need to see commitment to a 1.5°C pathway, via credible roadmaps that outline the investment needed in core sectors over the next 10-15 years. Stability in the long-term is key to enhancing investor trust. Secondly, governments should work to make incentives more aligned. While fossil fuel projects remain profitable, the UK will continue to explore licences in the North Sea and new coal mines in Cumbria. The International Energy Agency is clear that new fossil fuel ventures are not compatible with reaching net zero by 2050, yet while the right incentives remain in place, projects will be pursued. Stronger carbon pricing is the most economically efficient way to alter the risk-return parameters, and therefore make renewable ventures more attractive.
Sovereign engagement increasingly vital to climate stewardship
While responsibility lies with policymakers to enact these changes, investors also have an important role to play. Sovereign engagement is becoming an increasingly vital part of climate stewardship, and investors must use their influence to push for net-zero aligned outcomes. Collaborative engagement is often the most useful avenue for this type of work, and investors should seek to support such efforts where possible.
At EdenTree, we recognise this responsibility, with ‘collaborate’ acting as one of the four main pillars of our Climate Change Strategy. Under this pillar, we actively seek out opportunities to work with other investors to drive change. For example, last year we signed a letter to the UK Prime Minister calling for greater consistency in the government’s messaging about the net zero economy and its policy plans , while at the start of this year, we signed a statement calling on the EU to set a greenhouse gas emissions reduction target of at least 90% by 2040 .
The next few years represent a pivotal an opportunity for the UK to reaffirm its commitment to green finance and set the country back on the path to net zero. As responsible investors we will continue to use our position to encourage and support this revival.
