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Green Finance Taskforce sets clear to-do list for government

28th March 2018

The Aldersgate Group, which sits on the Green Finance Taskforce (GFT), urges the government to rapidly implement the GFT’s recommendations published today. However, based on the findings of its recent report [1], the Group warns that these recommendations will only be fully effective if the government also provides the policy detail that is needed under the Clean Growth Strategy and 25 Year Environment Plan to create a pipeline of green infrastructure projects which can be invested in.  

Nick Molho, Executive Director at the Aldersgate Group said: “Today, the Green Finance Taskforce recommends a comprehensive set of measures which, if implemented together, will make investment in green infrastructure projects more attractive. The recommendations for government to develop a National Capital Raising Plan, increase fiscal incentives for investment in green projects, require investors to consider environmental risks and make it compulsory for businesses to disclose how they are coping with climate change risks are all critical to moving the needle on green finance. The Taskforce has suggested a wide range of actions beyond the top recommendations, which the government should consider in full.
 
However, to be fully effective, implementation of these recommendations must be accompanied by more policy detail under the Clean Growth Strategy and 25 Year Environment Plan. If we want financial institutions to ‘green’ their investments, there needs to be a pipeline of green infrastructure projects for them to invest in. This will only happen if government provides more clarity in the coming months on the regulations and incentives that will be introduced to encourage investment in the energy efficiency of buildings, on- and offshore wind, low carbon heat, electric vehicles and the natural environment.”  

[1] Aldersgate Group, Towards the new normal: Increasing investment in the UK's green infrastructure, March 2018. Following a one-year project with businesses and investors, this report identifies the key barriers to greater investment in green infrastructure in the UK and makes key recommendations for government to grow investment in green infrastructure at the speed and scale needed to meet the objectives of the Clean Growth Strategy and 25 Year Environment Plan.

GFT report cover

Overcoming barriers to green infrastructure investment is a major opportunity for the UK

12th March 2018

Today, the Aldersgate Group publishes a new report Towards the new normal: increasing investment in the UK’s green infrastructure. This report, which concludes a one-year research project underpinned by multiple interviews with businesses and investors, argues that overcoming the barriers currently limiting private investment in green infrastructure is essential to delivering the Government’s economic, industrial and environmental policy objectives. It sets out key recommendations for government, businesses and investors to unlock greater volumes of private investment to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan.

This report will be launched at an event hosted by Bank of America Merrill Lynch at 11.30 on Monday 12th March [1].

Increasing private investment in green infrastructure represents a huge opportunity for the UK. It is a growing market for the professional services industry, and is a crucial way of reducing the cost of capital to meet the UK’s environmental and industrial policy objectives, presenting a significant opportunity in terms of job creation and potential exports. There is real urgency: up to £693bn investment in low carbon infrastructure will be needed by 2031 in the UK [2] to deliver policy objectives, with $90tn needed worldwide over the next 15 years [3].

To tackle the huge investment needs ahead and maximise the opportunities from a growing green investment market, this report puts forward 30 recommendations for government, business and investors. In particular, the report recommends that the UK government should:

  1. Commit to support the growth of green investment over the long term through the Clean Growth Inter-Ministerial Group, with a stated remit to boost green finance up to and beyond the delivery of the fifth carbon budget

  2. Set long-term visibility and transparency on policy direction through multi-year, cross-party frameworks, as has been the case with carbon budgets and the coal phase out, noting that after Brexit, EU-led policy drivers for investment may cease to apply. Government should build on the progress made in the Clean Growth Strategy (CGS) and 25 Year Environment Plan (25YEP) with greater policy detail to deliver ambitions, such as through measures to ensure all existing homes reach a level of energy efficiency of EPC band ‘C’ by 2030

  3. Engage a wider base of investors by establishing the potential size of the market for different infrastructure needs within the CGS, 25YEP and forthcoming Resources and Waste Strategy, such as expected spending on low carbon transport infrastructure, to help clarify the investment opportunity

  4. Expand UK reporting requirements to capture a larger set of reporting companies in the immediate term, and set a medium-term target for mandatory introduction of the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFDs)

  5. Adjust financial regulations to encourage long-term investment in green infrastructure, including through introducing a legal duty for all fiduciaries (such as pension fund trustees) to consider financially material environmental and social governance (ESG) risks and considering how a green supporting factor could help address market barriers arising from capital weighting requirements

  6. Introduce flexible and smart regulation to generate reliable revenue streams for investment in newer or complex markets like natural capital and energy efficiency, including a legally binding environmental net gain approach, as promised in the 25YEP, and the resumption of a carbon price escalator from the 2020s

  7. Ensure that all planned infrastructure spending passes a ‘green’ test to avoid locked in emissions and maximise resilience against flooding and future climate-related impacts

  8. Create targeted funds with cornerstone public funding to tackle difficult or less mature investment areas, such as domestic energy efficiency and natural capital, with a requirement to leverage in private capital and recycle funds for reinvestment

  9. Embed sustainability requirements in all public procurement, including supporting local government with standardised Power Purchase Agreements and energy management services contracts

  10. Issue a sovereign green bond and municipal green bonds to help fund the delivery of the 25YEP and CGS and address a potential drop in financing from institutions such as the European Investment Bank

The report, which comes shortly ahead of the publication of the government’s Green Finance Taskforce recommendations, brings together findings from the Aldersgate Group’s year-long project on green finance with the Centre for Understanding Sustainable Prosperity (CUSP) [4].

The report is released in conjunction with four separate briefings from the Aldersgate Group, which explore in detail several of the specific barriers and solutions to key types of green infrastructure investment: Increasing investment in domestic energy efficiency; Increasing investment in commercial energy efficiency; Increasing investment in low carbon power, and; Increasing investment in natural capital, which was first published in November 2017.

Alex White, lead report author and Senior Policy Officer, Aldersgate Group, said: “Over the next three decades, the UK needs hundreds of billions of private investment in green and resilient infrastructure to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan. But investment isn’t happening fast enough on its own. Government must catalyse action on green infrastructure investment now to move the financial system towards a new normal if we are to meet our policy goals cost effectively while maximising benefits for UK plc.

This should include making a long-term commitment to address the structural barriers to infrastructure investment in the financial system, helping establish new and profitable markets through targeted government investment in complex green infrastructure areas and, crucially, building an investment pipeline through greater clarity and visibility of future policy.”

Jane Pilcher, Group Treasurer, Anglian Water, said: “We welcome this new report from the Aldersgate Group and its call to support the growth of green investment over the long term. Anglian Water has committed to a range of ambitious environmental goals, including pledging to become a carbon neutral business by 2050. We have already reduced embodied carbon by 55% from a 2010 baseline and we aim to reach 60% carbon reduction by 2020. Based on this work we were able to issue the very first public utility sector green bond and we are pleased that this is featured as a case study in the report.”

Steve Waygood, Chief Responsible Investment Officer, Aviva Investors, said:  “At Aviva Investors we are committed to being long-term, responsible investors. We welcome this new report from the Aldersgate Group and its clear and realistic solutions to unlock greater flows of investment in low carbon infrastructure, particularly clarifying fiduciary duty and the need for mandatory introduction of the TCFD recommendations.  

We also welcome the call to use the dormant assets within the insurance and investment sectors to introduce a national financial literacy campaign to educate people about how their money is invested and how this shapes the world they retire into.  This would help create sustained demand for sustainable investment, helping to grow the UK economy on a longer term and more sustainable basis for the future.”

Tim Jackson, Director, Centre for the Understanding of Sustainable Prosperity, University of Surrey, said: “Prosperity depends on us investing wisely in a resilient, green infrastructure fit for the future. The Aldersgate Group’s new report provides the kind of visionary and yet pragmatic steps required to achieve this task. All we need now is clear-sighted governance to put these recommendations into practice, and to ensure that our financial system works in the service of a sustainable and lasting prosperity for everyone.” 

Emma Howard Boyd, Chair, Environment Agency, said: “Some businesses are already alive to the risks and opportunities presented by climate change, but not enough. The UK can show international leadership with financial innovation to counter increased risks from droughts and storms. The Government’s Green Finance Taskforce is currently discussing how to accelerate investment in resilience, so this report is timely and helpful.”

Edward Northam, European Head, Green Investment Group, said: “The UK has made extraordinary progress towards its climate goals for 2020, demonstrating private investors’ appetite for low carbon infrastructure and building a world-leading capability in green finance.

With the nation facing more demanding objectives in the next decade and beyond, this report sets out a collaborative framework for government and investors that could prove vital in managing risk, mobilising capital and securing the next generation of green infrastructure investment.”

Morten Sørensen, Senior Project Finance Specialist - Financial Solutions, MHI Vestas Offshore Wind, said: "The Aldersgate Group's report on green finance provides valuable and quick insight into the finance requirements needed to drive further growth of the UK’s low carbon technologies. These investments are significant and have long repayment horizons. At MHI Vestas Offshore Wind, we share the view that long-term planning and the right policy environment is required, such as through continued CfD auctions to attract greater private sector investment.

This report recommends solutions to bridge the gap in investment between current levels of finance and what we need to meet the UK’s climate targets, and we welcome the report’s support of offshore wind as playing a crucial role in this.”

[1] Towards the new normal: how to increase investment in the UK's green infrastructure. This event will be held from 11.30am - 1.00pm on Monday 12th March at Bank of America Merrill Lynch, 10 Newgate Street, London, EC1A 7HD. Chaired by Martin Wolf CBE, Chief Economics Commentator at the Financial Times, the event will open with introductory remarks from Abyd Karmali, Managing Director - Climate Finance at Bank of America Merrill Lynch. Panellists include Jane Pilcher, Group Treasurer, Anglian Water; Steve Waygood, Chief Responsible Investment Officer, Aviva Investors; Emma Howard Boyd, Chair, Environment Agency; Gavin Templeton, Head of Sustainable Finance, Green Investment Group; and Peter Highmore, Lead Transaction Manager - Structured Solutions, Ørsted. 

[2] Vivid Economics (October 2011) The economics of the Green Investment Bank: costs and benefits, rationale and value for money

[3] New Climate Economy (2016) The sustainable infrastructure imperative

[4] The Centre for Understanding Sustainable Prosperity is an international, multi-disciplinary research project, addressing not just the economic aspects of sustainable prosperity, but also its social, political and philosophical dimensions. Working closely with business, social enterprise, civil society and government, the Centre aims to develop pragmatic steps towards an inclusive economy that works for everyone. www.cusp.ac.uk


New surge in Aldersgate Group membership highlights growing business backing for the UK’s low carbon economy

1st March 2018

The Aldersgate Group is delighted to welcome six new members at the start of 2018: SUEZ, Ramboll, Michelin, Green Investment Group, CEMEX and Bournemouth University.

Arriving on the heels of landmark environmental commitments by the UK government in the Clean Growth and Industrial Strategies and 25 Year Environment Plan, the addition of six new members to the Aldersgate Group since the start of the year demonstrates increasing corporate recognition of the investment opportunities of the low carbon economy.

As highlighted by the Clean Growth Strategy, the UK’s low carbon economy could grow four times faster than the rest of the economy, contributing up to £170bn of exports in goods and services by 2030. [1]

The new members, all of whom have made strong commitments on the environment and low carbon growth, are drawn from a wide range of sectors including transport, manufacturing, waste, consultancy, finance and higher education, adding to the Aldersgate Group’s existing strong pan-economy membership. The cross-sector corporate commitment to ambitious low carbon policies illustrates the well-recognised link between the health of the economy and that of the environment.

Nick Molho, Executive Director, Aldersgate Group, said: “We are delighted to welcome these seven dynamic new members from across the economic spectrum whose diverse perspectives will be highly valuable to our ongoing work on climate and energy, green finance, natural capital and resource efficiency. We look forward to working with our growing membership and the UK Government in the year ahead to drive ambitious environmental policy in the UK and build a competitive low carbon economy.”

David Palmer-Jones, CEO, SUEZ recycling and recovery UK, said: “SUEZ is very pleased to join The Aldersgate Group and to contribute to its vital work. Businesses across all sectors of the UK are increasingly embracing circular economy principles to guide their commercial activities, and this is key if we want to collectively achieve resource-efficient, sustainable, low-carbon, economic growth in tandem with world-leading environmental protection. 

The UK has already made huge leaps in the past decade, shifting from a throw-away society to a culture of re-use and recycling. However, with growing pressure on saturated global secondary raw material markets, it is vital that we now quickly begin to forge a path to long-term clean growth, by carefully aligning our industrial strategies with environmental policy.”

Steve Laking, Division President, Ramboll Environment & Health, said: “Our mission is to create sustainable societies where people and nature flourish. We are in business to find solutions to our clients' most pressing needs, with improving living conditions and protecting the natural environment at the core of everything we do. We are delighted to join Aldersgate and participate in thought leadership debates to develop and strengthen the low-carbon agenda.”

John Young, Managing Director, Michelin Tyre PLC, said: “Michelin is extremely serious about its responsibility to the environment and is leading the charge in many ways when it comes to resource efficiency and the circular economy. It supports sustainable mobility initiatives across the world and hosts global sustainability events such as ‘Challenge Bibendum’ and ‘Movin’On’. By joining the Aldersgate Group Michelin hopes to bring about even greater change when it comes to issues affecting mobility and the environment.”

Edward Northam, European Head, Green Investment Group, said: “Financial innovation is central to a successful and affordable transition to a low carbon economy. We’ve already seen how the experience and capability of the UK’s green finance sector has contributed to dramatic cost reductions in offshore wind, helping establish the nation as an industry leader. The same level of enterprise has to be applied to other fronts if we want to develop a truly green and productive economy. We look forward to working as a member of the Aldersgate Group to help deliver deeper decarbonisation in the UK and internationally.”

Martin Casey, Director of Public Affairs & Communications UK & EU Public Affairs, CEMEX, said: “CEMEX is delighted to join the Aldersgate Group, whose broad cross-sectoral membership, commitment to a low-carbon and circular economy compliments well our own commitments to lower our carbon intensity and reduce emissions by managing our usage of energy and water and reducing waste generation. We look forward to engaging with the other members and the broader policy community to deliver a more sustainable future for all.”

Professor Tim McIntyre-Bhatty, Deputy Vice-Chancellor, Bournemouth University, said: “Bournemouth University has at been at the forefront of inspiring learning and advancing knowledge about sustainability and sustainable development for many years having secured millions of pounds from prestigious research funders such as the European Commission and Research Councils in the UK. Significant development of the low-carbon economy is critical to sustainably enrich society. Bournemouth University joins Aldersgate Group in order to contribute to thought leadership; adding the voice and weight of a committed advocate for sustainability from the higher education sector.”

[1] HM Government (October 2017) The Clean Growth Strategy. Leading the way to a low carbon future

AGforPR

Removing barriers to mature renewables key to lowering industrial electricity prices

5th February 2018

Today, the Aldersgate Group publishes a new report written by University College London (UCL) [1], setting out what the government can do to support competitive industrial electricity prices as it delivers its Clean Growth and Industrial Strategies. The report recommends that the UK government improves investment conditions in low-cost renewable energy technologies such as onshore wind, co-ordinates investment in power generation and network infrastructure more efficiently and ensures that the UK leaves the EU in a way that supports increased interconnection with European power grids and cross-border electricity trading. 

This report, written by Professor Michael Grubb and Paul Drummond of UCL, will be launched at an event in London on Monday 5th February [2]. Professor Michael Grubb, Professor of International Energy and Climate Change Policy at UCL, is available for interview.

Coming shortly after the government has published a Clean Growth and an Industrial Strategy and is reviewing the findings of the Helm Review on energy costs, this report sets out six policy recommendations to provide competitive industrial electricity prices. These recommendations seek to capitalise on the technological revolution underway in the clean power sector to reduce system costs and better align the structure of the electricity market with the UK’s new Industrial Strategy. 

To deliver competitive industrial electricity prices and reduce the gap with prices prevailing in some continental countries, the government should consider:

  1. Removing barriers to investment in mature renewable energy projects, given that technologies like onshore wind no longer need subsidy provided the political risks are minimised. This should be coupled with a resumption of the carbon price escalator, taking effect as coal retires from the UK system in the early 2020s, so that investors have confidence that they will save on fuel and rising carbon costs (with an appropriate compensation mechanism for those electro-intensive businesses in need of support);
  2. Encouraging greater co-ordination between investments in network and generation infrastructure to avoid congestion and inefficient network development. This should be done in conjunction with a review considering how to support electro-intensive companies with network costs;
  3. Ensuring that the UK leaves the EU in a way that retains unrestricted access to the internal energy market and supports continued investment in interconnection with continental grids, which will be essential to maintain system security affordably as the UK electricity system decarbonises. Research suggests that for every 1 GW of additional interconnection, UK wholesale electricity prices could reduce by 1% to 2% [3];
  4. Facilitating cross-border industrial electricity purchases;
  5. Using the five-year review of the Electricity Market Reform and Capacity Market to help UK industrial electricity consumers benefit from providing system-related services to the electricity system, such as demand-shifting and frequency support;
  6. Establishing a long-term market of zero carbon and tradeable electricity contracts to facilitate industry access to low cost and unsubsidised sources of renewable electricity such as onshore wind. Industrial consumers holding these contracts would avoid paying the carbon price.

The fact that UK industrial electricity prices are higher compared to those in countries such as France and Germany has been well documented but this report goes further than previous analysis by considering the drivers behind the evolution of electricity prices and what policy measures can help mitigate unnecessary costs to businesses.

It finds that differences in industrial electricity prices have been driven by the fact that some of the UK’s key continental neighbours tend to be better interconnected and engage in more cross-border electricity trading, are more supportive of long-term contracts to reduce prices for electro-intensive companies, take a more strategic approach to supporting electro-intensive companies with network and policy costs and have historically integrated renewable energy on their system in a more co-ordinated – and therefore cost-effective – way than in the UK (although UK policy is now improving in this regard).

Professor Michael Grubb, UCL, said: “With costs tumbling, the clean energy revolution presents an opportunity for UK industry. But harnessing the benefits will require removing the obstacles to mature renewables including onshore wind, and helping business consumers profit from flexibility. It also means ensuring that both fossil fuels and renewables face their environmental and system costs along with developing smarter energy markets, through which industry can procure its energy efficiently with the most cost-effective renewables.”

Nick Molho, Executive Director, Aldersgate Group, said: “Electro-intensive companies have an important role to play in the UK’s transition to a low carbon economy. The government has a wide range of tools available to deliver competitively priced power to those businesses in the years ahead, such as taking a more strategic approach to network development and funding, improving industry access to low cost forms of clean energy and ensuring that Brexit does not get in the way of increased interconnection and cross-border trading with the European electricity market.”

Roz Bulleid, Head of Climate, Energy and Environment Policy, EEF – the manufacturers’ organisation, said: “UCL is to be commended on a thorough investigation of the many complex and interconnected factors driving electricity prices in the UK and on the continent. Energy intensive manufacturers have been concerned for some time about the disparities between UK prices and those paid by their direct competitors. They will be pleased at the recognition of the challenges they face even if the scale of disparity for individual companies may vary beyond the averages necessarily set out here.

As a starting point, government should commission regular assessments of this type, as already happens in some competitor countries, and launch a wider conversation about the impact a more activist approach to electricity prices could have on UK industrial competitiveness.”

Martin Casey, Director of Public Affairs and Communications, CEMEX, said: “This report provides welcomed clarity on some of the challenges facing the cement industry and also puts forward some interesting options to improve the competitiveness of electricity prices which are fundamental to the future success of cement manufacturing in Britain, and consequently to the delivery of the Government's ambitious infrastructure and house building programmes.”

Dr Robert Gross, Co-director, UK Energy Research Centre, said: “This report provides a proper explanation of why UK power prices differ from those in near neighbours. Industrial power prices are not high because Britain is overambitious on green energy but because the way the costs and benefits of clean energy are shared have tended to disadvantage heavy industry.

The report rightly recommends that the UK should push ahead with subsidy-free long term contracts for low cost renewables and encourage large customers to contract directly with generators. The report also shows that prices here are higher because we are less interconnected than our continental neighbours. Interconnection is threatened by Brexit and it is a policy priority to keep the UK in the European energy market.”

Mary Thorogood, Stakeholder Relations Adviser, Vattenfall UK, said: “The UK has a great opportunity to take advantage of its investment in home grown, clean power to deliver competitive prices for consumers and businesses. Vattenfall agrees that, as the cheapest form of generation, UK Government should look at providing a viable path to investment in onshore wind. This will enable decarbonisation at least cost whilst improving the global competitiveness of British businesses of all sizes.” 

Angus MacRae, Head of Electricity Economics, SSE, said: “SSE welcomes this new analysis of how to achieve competitive GB electricity prices whilst delivering the Government’s Clean Growth Strategy at lowest cost. Many of the report’s recommendations will benefit customers by minimising overall costs, in particular, restoring access to the CfD mechanism for the cheapest renewable technologies, ensuring that carbon is properly accounted for in electricity imports, and providing a long-term investable carbon price signal.”

Dr Richard Leese, Director - MPA Cement and Director - Industrial Policy, Energy and Climate Change, Mineral Products Association said: “This report draws attention to an important issue for mineral products producers. Energy costs remain a significant issue for small, medium and large companies alike. Some cost compensations and exemptions exist for the few and are only partial where they apply. The Government’s clear support for renewable subsidies has brought down the cost of their installation and operation, but paradoxically, delivered electricity costs continue to rise. The Government needs to delve deeper into the energy system to understand the impacts and costs of low carbon electricity delivery on the system as a whole. In doing so it needs to take action on the rising costs associated with the network and its capacity constraints.”


[1] The Aldersgate Group published today a new report from Professor Michael Grubb and Paul Drummond at University College London, UK industrial electricity prices: competitiveness in a low carbon world.

[2] Delivering competitive industrial electricity prices in a low carbon world. This event will be held from 10.00am-11.30am on Monday 5th February at RELX Group, 1-3 Strand, London, WC2N 1JR. Chaired by Aldersgate Group Executive Director Nick Molho, the event will feature keynote speaker Michael Grubb, Professor of Energy and Climate Change, at the UCL Institute for Sustainable Resources. Panellists include Roz Bulleid, Head of Climate, Energy and Environment Policy, EEF - the manufacturers’ organisation, Dr Richard Leese, Director - MPA Cement and Director - Industrial Policy, Energy and Climate Change, Mineral Products Association, Matthew Knight, Director of Energy Strategy and Government Affairs, Siemens Plc, and Mary Thorogood, Stakeholder Relations Adviser, Vattenfall UK. 

[3] National Grid (March 2014) Getting more connected: the opportunity from greater electricity interconnection

For press enquiries please contact:

Sophie Arndt
Communications Officer
sophie.arndt@aldersgategroup.org.uk
020 7841 8966


25 Year Environment Plan: good policy direction but clearer measures needed to drive business investment in natural capital

11th January 2018

Reacting to the publication of the 25 Year Environment Plan, Nick Molho, Executive Director of the Aldersgate Group said: “Today, the government rightly highlighted the economic, social and health benefits of investing in the natural environment. By setting out long-term goals to improve our environment and committing to introducing reliable metrics to monitor progress, this plan provides much needed clarity on the direction of the UK’s environmental policy as it leaves the EU. Businesses will be at the heart of delivering the UK’s environmental goals and the Plan’s focus on significantly improving the resource efficiency of the economy and setting up a green business council is strongly welcomed.”
 
However, for the plan to be successful in the long term, it will need to coherently address the multiple barriers that are slowing down business investment in the natural environment. Some of those can be addressed by the ongoing reform of agricultural payments but others will require targeted government interventions in the form of outcomes focused regulations and incentives, support for natural capital innovation such as through the natural environment impact fund suggested in the Plan, improving business access to technical expertise and growing the UK’s green capital markets.”    
 
Nick Molho added: “By publishing clear goals to improve the state of the natural environment, the government is showing important leadership. This will need to be supported by government itself leading by example, by fulfilling its commitment to deliver net environmental gain in major national infrastructure projects such as HS2 and developing a public procurement policy that favours businesses with a focus on resource efficiency and natural capital enhancements.”

[1] In November 2017, the Aldersgate Group published two briefings Key asks for the 25 Year Environment Plan, which sets out business priorities for the plan, and Increasing investment in natural capital, which recommends actions by businesses and government to overcome the barriers currently restricting flows of finance towards natural capital projects.

Natcap