Two years ago at Cop26 in Glasgow, the then-Chancellor Rishi Sunak posed for cameras holding a green version of the typically red budget box. The stunt symbolised a green economic future for Britain, as Sunak vowed to make the UK the world’s first “net zero-aligned financial centre”.
But in the months leading up to Cop28 in Dubai, which ended earlier this month, Sunak has all but ditched his proverbial green budget box, shifting away from presenting net zero as an economic opportunity to painting it as an economic burden.
In September Sunak rolled back on a number of the UK’s key net-zero pledges, including delaying the ban on new internal combustion engine cars sales from 2030 to 2035. At Cop28 Sunak used his brief, half-day visit to remind the world that he had diluted several key net-zero policies, advocating for a “more pragmatic” approach. The UK’s absence from the negotiations was made even starker when Graham Stuart, the minister of state for climate change, flew back to London during the final, critical hours of the talks in order to vote on the Rwanda Bill, before slinking back to the Dubai for the closing moments of the conference.
Sunak’s retreat on key policies came as no surprise to the UK Sustainable Investment and Finance Association (UKSIF), which represents around 300 members that together account for more than £19trn in assets. In late August, UKSIF wrote to Sunak, warning him that Britain risks missing out on billions of pounds in investment, and 1.7 million green jobs if the government doubled down on “recent public statements and policy signals” that “cast uncertainty on government’s commitment to the UK’s near and longer-term climate targets”.
The letter appealed to Sunak’s original vision for the UK to be a leader in sustainable finance. For that to happen, the government must present “a purposeful and predictable policy at home,” it said.
Speaking to New Statesman Spotlight, James Alexander, UKSIF’s CEO and chair of the Global Sustainable Investment Alliance, was blunt in his summary of Sunak’s September speech, saying it was “the exact opposite of what we’ve been calling for”.
A delayed transition will push up costs for businesses and households, Alexander said, adding that net zero “is not an economic cost, as some would have us believe; it’s a huge opportunity to create new industries, and to drive innovation to create good jobs right across the country”. The government should be “pushing this, putting the UK in pole position for the economy of the future”.
Alexander said that “the importance of policy in bringing investment into the UK cannot be overstated,” noting that investors expect policies to remain unchanged after they’ve been enacted. Ever since the government began to make hints about U-turning on certain policies several months ago, the UK has been “operating in an uncertain policy environment”, with investors concluding that “investing on the basis of the UK’s climate targets represents a much higher risk now than it did three, six, or nine months ago,” he says.
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There is a risk that investors take flight in search of a more favourable policy environment. UKSIF is “already hearing from a lot of members” that the US is an “extremely attractive” destination, with the EU also becoming “increasingly attractive” because of Joe Biden’s Inflation Reduction Act (IRA) and the EU Commission’s response to it. The UK, by comparison, appears woefully lacking in its net-zero industrial strategy, with companies lured across the pond by generous IRA tax credits.
The UK could apply a similar model to the IRA by identifying new economic areas, and then implementing a subsidy model that “allows for supply to be built in the absence of demand, with the expectation that demand will follow,” Alexander says. Tata Group’s £4bn investment in a new electric car battery gigafactory is a uniquely successful example of such a model, he said. Over the summer, the UK government offered Tata Group, the parent company of Jaguar Land Rover, an estimated £500m in support to build its new factory in Britain. It is one of the largest-ever investments in the British automotive sector and will create 4,000 jobs.
But this deal was a rare exception: “In the UK, there is no clarity on what sort of subsidies may be available, so if you’re an international company looking to build your new battery plant somewhere in the world, it’s much easier at the moment to choose other countries than to choose the UK, and we need to change that.”
Under its “Green Prosperity Plan”, Labour intends to deliver £28bn of subsidies for “green projects”, including a new state-run energy company modelled after France’s EDF. Although this figure (which actually amounts to £20bn in “additional” spending, according to an analysis from the Institute of Fiscal Studies) represents “high levels of public investment by recent UK standards”, it would still leave overall investment as a share of national income falling over the course of the next parliament, finds the IFS.
To reel back investor confidence, Alexander argued that we need to see a “much stronger enabling policy landscape”, with long-term government backing; sectoral transition plans across the economy; credible decarbonisation roadmaps, and a “comprehensive response to the IRA”. While we’re not by any stretch in the same position as the US in terms of financial firepower, Britain can “play to its strengths”, he says, for example, its “enormous global strength in financial services”.
UKSIF has been heavily involved in a number of sustainable finance developments over the past few years, including advising on the UK’s Green Finance Strategy, which the organisation “strongly supports”. The “challenge” Britain now faces “is on delivering that strategy, and doing it rapidly – we want to see substantial progress made on the Green Taxonomy (a common framework for defining sustainable investments); incorporating the International Sustainability Standards Board into UK regulation, and corporate transition plans being a core part of the disclosure framework. We want to see all of this moving forward before the election.”
Alexander concludes on a hopeful note. The UK “could and should be the world’s leader on sustainable finance”. With the right regulatory environment, he can even envisage a future “where the UK financial services industry is financing the whole world’s transition”.