Kate Levick, E3G’s associate director for sustainable finance, makes the case for a Net Zero Investment Plan for the UK.
Net zero is, as Chris Skidmore MP put it, the “economic opportunity of the 21st century”.
Investing in decarbonisation and new net zero infrastructure and industries will create jobs, spur economic growth and rebalance the UK’s economy across its regions. All while mitigating the effects of climate change.
The EU and US are already putting in place substantial incentives for investment in green economic activity through the Net Zero Industry Act and Inflation Reduction Act, respectively.
The need for investment to meet climate targets
However, much more investment is needed in all countries to meet the climate challenge.
In the UK, the Climate Change Committee estimates that to meet climate targets, total investment must increase from about £10 billion per year in 2020, to £50 billion per year by 2030 – before peaking in 2035 at nearly £60 billion.
There will be an important role to play for strategic public investment, but the bulk of this investment will need to come from the private sector.
The UK recognised this at COP26 when the then-Chancellor Rishi Sunak announced that the UK would become the world’s first Net Zero Aligned Financial Centre.
In the coming days, the UK government will set out their plans to deliver on this promise. These will come as a suite of strategy documents to help shape the nation’s transition to net zero emissions by 2050 and ensure energy security.
- a new Green Finance Strategy;
- an updated version of the Net Zero Strategy; and
- the official response to Chris Skidmore’s Net Zero Review.
A Net Zero Investment Plan for the UK
One of the core recommendations of the Net Zero Review, led by Chris Skidmore MP, was a Net Zero Investment Plan for the UK.
A coalition of companies and investors, managing trillions of pounds in assets, recently joined the calls for government to create such a plan.
A Net Zero Investment Plan would signal to markets a desired pathway for the UK’s future economic development in the context of climate and energy security goals.
It would incentivise the decarbonisation of key sectors of the economy, and support mobilisation of investment at scale into green infrastructure.
Setting out investment ‘best practice’
Private sector investors will soon be expected to publish climate transition plans, report their climate-related financial risks, and disclose what proportion of their investments are aligned with the UK green taxonomy.
Setting out equivalent information about public investment would provide policy certainty, reduce investment risk, and crowd in private finance.
If the UK were to set out a plan which covered both public and private investment in the climate transition, this would be a welcome move.
Measuring progress of net zero investments
Reliable data will be necessary to set high-level investment targets for the UK’s net zero transition, and measure progress against them.
The UK already committed to tracking green financial flows in the original version of the Net Zero Strategy.
In the context of a Net Zero Investment Plan, the government should also assess whether investment flows are on track against the UK’s net zero targets. This would enable the government to make policy course corrections where this isn’t the case.
Public investment decisions for net zero will be more robust and credible if there’s an ecosystem of scrutiny and governance around them.
When it comes to green infrastructure, this scrutiny role is carried out by the National Infrastructure Commission, and decisions are guided by the National Infrastructure Strategy.
For tracking green investment overall, there’s a role for an independent institution – such as the Climate Change Committee or the Office of Budget Responsibility – to take on the responsibility of ‘keeping score’.
Changes are coming in this space
Readers should keep their eyes peeled this week for some major climate and energy security announcements.
UK stakeholders will be hoping for a robust response to measures in other jurisdictions such as the Inflation Reduction Act and Green Deal Industrial Act.
Announcing a Net Zero Investment Plan for the UK, combined with a package of related policies and incentives for investment, would be a bold step that could set the scene for economic growth and modernisation.
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