In one of her last acts as prime minister, Theresa May took the bold step to follow the recommendations of the UK’s Committee on Climate Change, and pass a legally binding net-zero carbon target for 2050.
Despite falling behind its 2020 and 2030 carbon targets, the UK has now become the only large developed nation to have such a target written into law. Other European nations including Germany, Italy and Poland are yet to jump on the bandwagon following recent talks.
There are several criticisms of the 2050 target itself. Namely that the speed of CO2 footprint reduction is far more important than when exactly net-zero is eventually reached, the missed direct inclusion of aviation emissions – relying on carbon-offsetting elsewhere in the world and the fact that this target is re-evaluated every five-years, possibly creating a ‘way out’ for future governments.
To me, these valid criticisms present a worry over how impactful the target alone will be in catalysing change. Clearly we need actionable steps for industry to follow and cross-government coordination to back-up the goal with fully committed policy support. HMRC passing a hike in VAT on solar battery technology from 5% to 20% is definitely not an example of that.
Green finance strategy
We realise the concerns within the financial sector, but also strongly believe in the potential catalyst it can be to achieve both the Paris Climate Agreement and the UN Sustainable Development Goals.
To our and the industry’s relief the government seems to understand this too, and as a first step towards net-zero carbon UK it has launched the highly anticipated ‘Green finance strategy’ to respond to the challenge. It has two main aims: greening finance (for example by making it mandatory for large asset managers and listed companies to report on climate change risks and opportunities aligned with the Task Force on climate-related financial disclosures) and to create new funding vehicles and leverage more private capital to green projects, infrastructure and innovators.
While the reporting requirement might initially seem as just another page in an annual report, we think it could bring the much-needed transparency that can inform better investment decision making, and help distinguish ‘dark green’ from ‘greenwashing’ company initiatives and investments.
Ideally, it would be good to extend reporting to the positive outcomes created by investments too – like we will be doing once again in our annual impact report to be published in September.
On financing green projects, we are a little disappointed for now. The new green homes fund in the size of £5 million will barely do the trick, especially given the UK’s residential buildings account for 20% of all greenhouse gas emissions. We are hoping to see a lot more public capital directed at green solutions within the UK, but also that the spending will look at climate change as the global phenomenon that it is – aligning public spending abroad too. Last year alone, £2bn went to overseas fossil fuel projects.
Going green with your money
Also, and importantly, this section in the strategy does not once refer to mobilising individuals’ savings or pensions to green solutions, despite the title ‘improving access to finance for green investment’. From our experience, once individuals understand that they can align their investments with their values, there is an overwhelming wish to move it from contributing to the ‘blockers’ to a sustainable world and ‘business-as-usual’ to the solution-providers.
EQ’s Positive Impact Portfolios, for example, allow anyone to not just avoid those businesses that are exposed to climate change risks, but instead target those that are intentionally making a positive contribution to a net-zero carbon world – including themes like renewable energy, electric vehicles, green buildings and circular resources.
Just the start
Setting a deadline and the Green Finance Strategy are very welcome steps. But we view this as just the starting point, if we are to deliver a planet fit for our children’s future.