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Detailed Net Zero Strategy must be published ahead of COP26

24th June 2021

Reacting to today’s Progress Reports from the Climate Change Committee [1], Nick Molho, Executive Director of the Aldersgate Group said: “The only way the UK can credibly protect its economy from climate risks and get on track for achieving net zero emissions is by making climate change a top priority for all government departments and supporting this with detailed and timely policy plans. Today’s Progress Reports from the Climate Change Committee show that this is clearly not the case at present.

"This parliamentary term is critical for meeting the UK’s climate and adaptation targets and doing so in a way that delivers supply chain growth and job creation across the country. The extent to which the UK can minimise the costs and maximise the economic opportunities from the net zero transition and adapting to climate change will ultimately depend on the policy decisions that the Government makes in the years to come.”  

Nick Molho added: “Whilst some welcome progress has been made in cutting emissions in the power sector, our extensive engagement with businesses show that there is a critical lack of policy measures to drive low carbon investment in buildings, transport, agriculture and heavy industry. The Government can answer these concerns by publishing a detailed and cross-sectoral Net Zero Strategy ahead of COP26 and carefully co-ordinating this Strategy with the funding plan to be published by the Treasury as part of its Net Zero Review. [2]” 

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[1] The Climate Change Committee’s Progress Reports on climate change mitigation and adaption will be published at 00.01 on Thursday 24 June.

[2] As part of a major project with Frontier Economics and University College London, the Aldersgate Group will be publishing detailed reports in early September, setting out key policy decisions to successfully decarbonise UK heavy industry and maximise economic opportunities in the process.

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UK should seize unique opportunity to green its financial system

22nd June 2021

In a new report published today [1], the Aldersgate Group urges the Government to use the UK’s current leadership position on climate change and the environment, and its ongoing review of financial services regulations [2], to embed environmental sustainability into the rules governing the UK’s financial system and influence similar changes to international rules and standards. The Group also calls for the publication of more detailed and comprehensive policy commitments to accelerate and lower the cost of private investment in the low carbon and nature restoration projects needed to meet the UK’s climate and environmental targets.

The report – which is based on extensive engagement with leading financial institutions, FTSE100 businesses and civil society organisations – sets out a range of recommendations to: (i) more deeply embed climate and nature restoration targets into the decision-making of financial institutions, businesses and Government; (ii) accelerate and lower the costs of private investment in green projects; and (iii) work closely with international partners in areas of mutual interest, such as carbon trading, disclosures and green taxonomies.

~ The key findings of the report will be discussed at a webinar on Tuesday 22 June at 9.30am with John Glen MP, Economic Secretary to the Treasury, and a range of senior speakers from the business, financial institution and NGO community. [3] ~

The UK Government has made welcome commitments on green finance since the publication of the Green Finance Strategy in 2019, including mandating that disclosures are aligned with the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD) by 2025, and launching the new UK Infrastructure Bank with a mission to support the delivery of the net zero target. The Government has also rightly identified mobilising green finance as one of the four key themes at COP26.

However, climate and environmental considerations are still not sufficiently embedded in the UK’s financial system, with only a third of Prudential Regulation Authority-regulated banks and building societies having a science-based target or net zero strategy. [4] Whilst private investment into low carbon and environmental projects is on the rise, it remains insufficient, with some complex projects facing significant market barriers in areas such as heavy industry and nature restoration. This comes at a time when the Climate Change Committee estimates that some £50bn in additional infrastructure investment will be needed every year from 2030 onwards to put the UK on track for the Sixth Carbon Budget and its 2050 net zero emissions target. [5]

In light of these challenges, the Aldersgate Group’s latest report Financing the future sets out a range of recommendations to put the whole financial sector on track to deliver the UK’s net zero and environmental targets, whilst simultaneously unlocking private investment to drive low carbon innovation, supply chain growth and job creation across the UK. The report highlights that the ongoing review of the regulatory framework governing the UK’s financial services sector – made necessary by the UK’s departure from the EU – provides an opportunity for the UK to lead the way in incorporating environmental sustainability into the regulatory framework governing its financial system and, in doing so, influence key changes to the international financial rules and standards.

Key recommendations include:

Accelerating the take-up of climate-related disclosures

  • The Government should support a review of existing guidance, standards and definitions governing climate-related disclosures (including the TCFD, Streamlined Energy and Carbon Reporting, and the Carbon Disclosure Project) to ensure a more rapid take-up and greater consistency and comparability between disclosure requirements. The report also calls on regulators to provide guidance to improve voluntary reporting of scenario analysis under the TCFD, with a view to introducing mandatory scenario analysis from 2025.

Embedding climate and environmental targets at the heart of the financial system

  • The Government, Bank of England and the Financial Conduct Authority should consult on a roadmap to introduce regulation that requires financial institutions to produce net zero targets and transition plans in the 2020s, with regulation starting no later than 2025. Part of this consultative process should involve regulators providing guidance to support and encourage all sub-sectors of the financial services industry to publish net zero transition plans and targets on a voluntary basis, with guidance to be published no later than 2022.
  • Pension fund managers should be required to automatically enrol new beneficiaries into Paris Agreement-aligned pensions funds and proactively engage with existing beneficiaries to outline the benefits of transferring fund holdings into Paris-aligned funds and environmental, social and governance (ESG) schemes.
  • UK policy makers and regulators should work together to set capital treatment for banks and insurers in a way that reflects the long-term risks of assets to financial stability, to incentivise more strategic asset allocation in environmentally sustainable assets and a transition away from high carbon or environmentally damaging assets.

Maximise the impact of public finance to crowd in private investment

  • Maximise the impact of targeted public finance to crowd in private finance in complex low carbon and environmental projects [6]. In particular, the recently launched UK Infrastructure Bank (UKIB) should be strengthened by including environmental resilience as part of its mandate, ensuring that it is able to tackle different market failures as market conditions evolve and by increasing its capitalisation over time. There should be a joined-up strategy to ensure that the focus of the UKIB and the Government’s green sovereign bond issuances are carefully co-ordinated to maximise the impact of public finance in overcoming market barriers.

Introducing strong policy signals to accelerate private investment in low carbon infrastructure and nature restoration projects

  • The Government should accelerate and lower the cost of private investment in low carbon infrastructure and services by publishing a detailed and cross-Government net zero delivery strategy ahead of COP26. This should set out the key policy decisions that will be adopted over the next five to ten years on a sector-by-sector basis to put the UK on a credible pathway towards its net zero target. [7]
  • The Group also calls for more ambition on carbon pricing and in particular a strengthening of the UK Emissions Trading Scheme (UK ETS). This should include Government rapidly consulting on the alignment of the UK ETS with the net zero target, setting a rising carbon price trajectory throughout the 2020s, gradually phasing out free emission allowances and expanding the scope of the scheme to a growing number of economic sectors where feasible.
  • Building on the Dasgupta Review commissioned by HM Treasury, urgent efforts should be made to embed the value of nature into economic policy and investment decision making and accelerate private investment in nature restoration projects. This requires strengthening the target setting and delivery process in the Environment Bill, making reporting in line with the new Taskforce for Nature-related Financial Disclosures (TNFD) mandatory in the 2020s, and working towards the introduction of a mandatory requirement for businesses to prepare and publish biodiversity loss mitigation and adaptation targets, and associated transition plans.

Influencing international rules and standards and driving global collaboration on green finance

  • Building on domestic reforms, the UK should use its leadership position on the global climate agenda following the G7 summit and its presidency of COP26 to encourage a greater focus on environmental and climate considerations in the rules and standards governing international financial markets. This should include collaborating with key international partners, including the EU, on areas of common interest such as the development of green taxonomies and climate and nature-related disclosure requirements.
  • The UK should use its presidency of COP26 to finalise a rule book for international carbon trading under Article 6 of the Paris Agreement. The Aldersgate Group would also welcome the restoration of the historical commitment of 0.7% of Gross National Income on Overseas Development Aid, to demonstrate the UK’s dedication to international climate finance.

Nick Molho, Executive Director, Aldersgate Group said: “Meeting the UK’s net zero emissions and nature restoration targets is a significant investment challenge, most of which will be met by the private sector. Providing clear policy commitments and fully embedding the UK’s climate and environmental targets in the way the financial sector operates are key to attracting the level of private investment we need and lowering the cost of finance. The regulatory review made necessary by the UK’s departure from the EU provides the UK with the opportunity to be a world leader in greening the rules governing its financial system and becoming a genuinely world class centre for green finance; the Government should seize it.”

Ian Dickie, Director at eftec, said: “The potential environmental markets on biodiversity, carbon and nutrients etc are now real. The Government needs to provide clear rules, adequate governance and invest to leverage private finance; this will give confidence to investors and benefit the environment. The Aldersgate Group message, that good environmental regulation is good for the economy, has never been more relevant".

Stephanie Maier, Global Head of Sustainable and Impact Investment, GAM Investments, said: “The recent Net Zero by 2050 report from the International Energy Agency provided compelling evidence of the enormous effort that will be needed to decarbonise the sector; private finance and investment have a pivotal role in supporting both this and the transformation of the whole economy. This report from the Aldersgate Group sets out recommendations for Government and financial regulators to facilitate and accelerate this transformation by capitalising on the opportunity presented by COP26.”

Raphaëlle Vallet, Manager, Sustainable Finance, Green Investment Group, said: “Achieving Net Zero requires a colossal effort across the public and private sectors. We urgently need to mainstream sustainability throughout policy frameworks and investment decisions. Aldersgate Group’s report is an excellent contribution to the agenda, with practical steps that will help drive finance towards a net zero future.”

Sam French, Business Development Director, Johnson Matthey, says: “The recommendations for financing green projects and infrastructure in Financing the future are critical to accelerate innovation in areas such as hydrogen and CCUS, and drive emissions reductions across the UK. In particular, it is vital that the Government uses carbon pricing as a tool to drive funding towards low carbon technologies, by aligning the UK Emissions Trading Scheme (ETS) with net zero and the EU ETS, and giving stability to businesses through a carbon pricing escalator. In addition, developing supportive business models for hydrogen and CCS will be essential to enable businesses to invest in these new markets allowing the UK to position itself as a leader in both deployment and the associated supply chain.”

Paul Morling, Economist at the RSPB, said: “Our future economic prosperity depends on the choices we now take to build back better from Covid and the centrality of climate and nature in recovery strategies. Greening finance is an urgent priority and this report sets out the necessary actions to effect the sustainable transition we need to see for our wellbeing, future generations and nature.”

Bevis Watts, Chief Executive Officer at Triodos Bank, said: “We are pleased to support the findings of this important report. We welcome the calls to support investment in areas such as nature-based solutions, but while increasing interest in the environmental crises and net-zero is encouraging, we now need a step change in the ambition of the financial sector to have any hope of meeting the scale of the challenges we face. Achieving this will require drastic changes to the structures of our financial systems and the regulation that supports it.

Robust, science-based net zero targets are critically important and we also need to recognise the inherent value of our environment and the challenge we have to redesign systems to reflect much more than a financial bottom line. It is time for the finance sector to play its role and use more imagination in how economic outcomes can be linked to investment in nature alongside the broader social needs outlined in the UN Sustainable Development Goals. This is central to developing a new economy built on values rather than value, and that has an integral connection to societal health and environmental limits.”

Julia Barrett, Chief Sustainability Officer at Wilmott Dixon, said: “Private sector investment will be essential in helping the UK meet its climate and environmental objectives and secure a green recovery, as today’s report by Aldersgate Group makes abundantly clear.  For businesses, the publication of a comprehensive and joined-up Net Zero Strategy by Government ahead of COP26  will be fundamental to demonstrate the direction of travel for each sector in the run up to 2050, helping them allocate capital in the most efficient way to meet these milestones. 

In the construction sector specifically, binding regulatory standards and tax incentives to drive investment in energy efficiency and low carbon heat in existing buildings will be key. Furthermore well-designed and properly enforced, ambitious environmental regulations will help mobilise investment in the infrastructure, innovation, skills and supply chains needed for the whole sector to meet net zero.”

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[1] The new report Financing the future: Driving investment for net zero emissions and nature restoration is available here. The report was developed with the support from the Centre for the Understanding Sustainable Prosperity (CUSP).

[2] The ongoing Financial Future Regulatory Framework Review considers how the regulatory framework governing the UK’s financial services sector needs to evolve to reflect the UK’s position outside the EU. More information is available here.

[3] The report will be debated at an event from 9.30am to 11.00am on Tuesday 22 June, with panellists from multiple business sectors. You can register here.

[4] PwC (October 2020) Rising to the challenge: climate risk in the UK banking sector, available here.

[5] Currently, the UK is seeing a major investment gap in both low carbon infrastructure and natural capital. Research from the Climate Change Committee (CCC) has estimated £50 billion of annual additional investment will be required from 2030 onwards to deliver the net zero target, in addition to current economy-wide annual investment of just under £400 billion. The largest increases in investment are needed for building low carbon power capacity, retrofitting buildings, developing batteries and putting in place the required infrastructure for electric vehicles. The Institute for Public Policy Research has estimated that nature restoration alone could need as much as £4.7 billion of additional funding each year.

[6] The crowding in theory of change is based on the principle that rising public spending and Government borrowing drives up private sector demand and spending in areas of the market which have typically been low. This can be achieved by, for example, de-risking new technologies, or “creating a market in the gap” where market failures have existed for a long time.”

[7] In October 2020, the Aldersgate Group published a report outlining the policy detail for decarbonising each sector, titled Building a net zero emissions economy: Next steps for government and business. The report is available here.

 


Launch of the UK Infrastructure Bank marks important milestone for recovery and net zero

17th June 2021

Reacting to the launch of the UK Infrastructure Bank, Nick Molho, Executive Director at the Aldersgate Group, said: “The creation of the UK Infrastructure Bank is a vital and strongly welcomed intervention at a time where the UK economy needs to recover from the disruption brought about by the pandemic and put itself on track for net zero emissions. The Bank has a key role to play in crowding in much needed private investment towards crucial and complex low carbon projects and industries, which can drive innovation, supply chain growth and job creation across the country. However, with the Committee on Climate Change [1] highlighting yesterday that the UK is poorly prepared to deal with the impacts from climate change, it is essential that the Bank also has climate adaptation and nature restoration as a key part of its mandate. It is also key that the Bank be set up as an enduring institution, with the flexibility to tackle different market failures over time as market conditions evolve and with a gradual increase to its capitalisation to ensure that it has the right financial firepower to carry out its mission effectively and tackle the significant market barriers ahead.”

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[1] Climate Change Committee (2021) Independent Assessment of UK Climate Risk

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Future business resilience depends on urgent climate adaptation measures

16th June 2021

Reacting to the Climate Change Committee’s advice, Nick Molho, Executive Director of the Aldersgate Group said: “Today’s high-quality analysis from the Climate Change Committee makes it abundantly clear that adapting to climate change is an environmental and economic imperative. In addition to devastating impacts on species and habitats, climate change will, without further urgent action, significantly disrupt the UK’s critical infrastructure, supply chains, food supply and business productivity. Businesses are clear that climate adaptation and the delivery of the UK’s net zero emissions target should both be cross-departmental priorities and be fully embedded across all areas of Government policy making.”

Nick Molho added: “A key message from today’s report is that restoring the natural environment – including soils, peatlands, wetlands and forests – will significantly improve the UK’s ability to cope with climate change as well as provide much needed negative emissions to deliver the net zero target. The Environment Bill could play a crucial, positive role here and we urge the Government to strengthen it by introducing binding interim targets that will drive rapid investment in nature restoration projects.”    

Nick Molho concluded: “Businesses also have an important and pro-active role to play in improving the future resilience of the economy. This should include regularly monitoring and disclosing their vulnerability to the physical and regulatory impacts related to climate change, reviewing the environmental impacts and resilience of their supply chains, incorporating climate change adaptation in everyday investment decisions and large corporations supporting smaller businesses in their supply chains to develop adaptation strategies.”  

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Regulatory reform needs to recognise economic benefits of ambitious climate and environmental regulations

16th June 2021

In response to the report produced by the Taskforce on Innovation, Growth and Regulatory Reform, Signe Norberg, Head of Public Affairs and Communications at the Aldersgate Group, said: “Regulation is a vital part of ensuring the competitiveness of UK industry, creating jobs, increasing innovation and driving investment in crucial technologies and goods. We welcome the Taskforce’s recommendation on reforming the UK regulatory framework for energy generation and distribution in line with the Government’s climate ambitions. However, while the report examines areas to modernise regulation and highlights important areas of innovation, such as transport, energy and finance, it fails to adequately incorporate Government’s environmental objectives and net zero ambitions, which will be essential to ensure that the UK builds back greener and creates a green industrial revolution.”
 
Signe Norberg added: “Businesses support ambitious, forward looking, well joined-up and properly enforced environmental regulations, policies and market mechanisms. [1] They are essential to creating a stable environment in which businesses can invest. Previous regulatory efforts have been insufficient in assessing wider social and environmental impacts [2], and to ensure we meet our objectives it is crucial that climate and environmental objectives are placed at the heart of the Government’s regulatory reform agenda.”

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[1] Buro Happold (2021) Fostering Prosperity: Driving innovation and creating market opportunities through environmental regulations, commissioned by the Aldersgate Group
[2] National Audit Office (2016) The Business Impact Target: cutting the cost of regulation

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Business coalition calling for the Planning Bill to deliver net zero and protect nature

14th June 2021

More than 100 prominent business leaders have written to the Prime Minister calling for the net zero transition, nature’s recovery, and climate resilience to be at the heart of the UK’s new planning system.

The letter, which has been co-ordinated by the Aldersgate Group and UK Green Building Council (UKGBC), welcomes the government’s commitments to addressing the housing crisis and reaching net zero by 2050. To ensure it meets its housing targets and environmental commitments, it is vital that the Planning Bill drives a strategic approach to the net zero transition, ensuring that development that is resilient to the impacts of climate change, and that nature can be supported and restored.

The signatories therefore call on the Prime Minister to ensure the new Planning Bill directly aligns with the obligations under the Climate Change Act and plans to reverse nature's decline in the Environment Bill. The letter highlights how planning can play a fundamental role in meeting the Government’s new homes target, achieving its environmental goals, and delivering the infrastructure that is needed for the transition to a decarbonised, climate-resilient economy.

The letter calls for:

  • The new Planning Bill to align directly with, and support, the UK’s net zero target and ambitions for nature set out in the Environment Bill.
  • Clarity on how land allocated for ‘growth’ will be compatible with achieving net zero, securing nature’s recovery and delivering development resilient to the impacts of climate change.
  • Genuinely enhanced levels of protection in planning for designations in the Envrionment Bill intended to support nature’s recovery.
  • Increased resourcing and skills support for local planning authorities, in order to support their abiltiy to set local targets, and deliver across multiple objectives in their local areas.  

The letter has been sent to the Prime Minister, alongside Secretaries of State Rt Hon Robert Jenrick MP, Rt Hon George Eustice MP and the Chancellor of the Duchy of Lancaster the Rt Hon Michael Gove MP.

Julie Hirigoyen, Chief Executive at UKGBC, said: “The upcoming Planning Bill has been earmarked as the biggest planning shake up since World War II and represents a critical opportunity to embed a strategic vision for a decarbonised and climate resilient economy, as well as reversing biodiversity decline. Planning is part of a wider system that is currently failing to deliver both the quality and quantity of homes needed to tackle the environmental and social challenges we face, and the upcoming reforms must form part of a coherent, long term commitment by the Government to environmental protection; one that gives developers clarity around low carbon, nature friendly investment.

“The number of businesses coming together to support this letter shows clear demand for climate change to be at the heart of our planning system, and I urge government to listen to industry and match the level of ambition set out in this letter.”

Signe Norberg, Head of Public Affairs and Communications at Aldersgate Group, said: “Reforms to the planning system present an opportunity for Government to not only tackle one of the most significant social challenges facing the country – the housing crisis – but also to ensure that our planning framework actively supports the UK’s climate and environmental ambitions. To reach net zero emissions by 2050 and reverse the decline of the natural environment, it will be essential that the planning system fully integrates these issues at the heart of the new legislation. By setting forward a strategic approach to planning in line with this, Government can unlock private sector investment, create jobs, generate vital low carbon skills, and build homes that are fit for the future.”


Response to Dasgupta Review good first step but further action needed

14th June 2021

Responding to the publication of the Government’s response to the Dasgupta Review, Signe Norberg, Head of Public Affairs and Communications at the Aldersgate Group, said: “It is positive to see the Government taking on board the findings from the Dasgupta Review and in particular the fact that economic and financial policy decision making has a crucial role to play in supporting the restoration of a healthy natural environment and ensuring the long-term resilience of the economy. The response also confirms that biodiversity net gain will apply to nationally significant infrastructure projects in England, which is an important development that helps bolster this important provision in the Environment Bill.”

Signe Norberg added: “However, today’s response does not amount to the necessary step change called for by Professor Sir Dasgupta. It is vital that the response goes further and clearly lays out a cross-departmental plan with a range of commitments that support the mainstreaming of nature into economic decision making. In addition to contributing to the Better Regulation Framework and supporting the development of nature-related financial disclosures, it is important that the whole of Government takes on the challenge posed by the Review and introduces new measures in the near and long term to support nature’s recovery. An ambitious Environment Bill, with binding interim targets and environmental improvement plans focused on delivering these targets, can play a key role in driving investment to restore the natural environment to the healthy status that our economy and society need.”

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