‘We need confidence’: Financial giants warn wavering on climate policy is undermining UK investment prospects

A group of 36 leading investment managers, banks, and pension funds that together hold £1.5tr of assets under management have today written to Prime Minister Rishi Sunak, warning that mixed messages from the government on its support for the net zero transition are jeopardising billions of pounds of much needed investment.

Members of the UK Sustainable Investment and Finance Association, including major financial firms such as Jupiter Asset Management, Scottish Widows, Royal London, Aegon, and Triodos, warned that recent moves to dilute or delay decarbonisation policies would impact the ability of financiers to provide the estimated £50bn to £60bn of annual investment required to deliver on the UK’s legally-binding climate goals.

In recent weeks, senior Ministers from the Prime Minister down have signalled their desire to take a more “pragmatic” approach to the net zero transition, arguing that some policies that could impose near-term costs on households and businesses should be deferred.

Sunak has insisted the government remains fully committed to meeting the UK’s medium and long-term emissions goals, but over the past few months Ministers have backed reforms that have reduced the cost of carbon in the UK’s emissions trading scheme, signalled their intention to delay energy efficiency rules for landlords, repeatedly criticised plans to expand London’s Ultra Low Enmission Zone (ULEZ), and confirmed plans to issue new oil and gas drilling licenses.

Meanwhile, the government has largely failed to come forward with new decarbonisation policies, despite the Climate Change Committee warning earlier this summer that the UK was now badly off track to meet its medium-term emissions goals.

Today’s letter warns that the mixed messages from government were having an impact on investor confidence at a time when international investors are keen to ramp up support for low carbon projects.

“As investment managers, banks, asset owners and other financial institutions managing £1.5tr in assets under management, we are writing to express concern at government’s recent public statements and policy signals, which risk undermining the UK’s leadership in the clarity, certainty, and confidence of policymaking toward meeting the UK’s commitment to net zero,” the letter states. “This shift blurs regulatory visibility for investors and risks the ability of the finance sector to make the large-scale, transformative investments required to accelerate net-zero delivery and unlock growth in the UK.”

It added that a lack of clarity over a host of planned decarbonisation policies risked eroding confidence in the UK’s ability to deliver on its climate goals.

“Recent public debates have cast doubt on the UK’s 2030 phase-out of new petrol and diesel cars and 2035 phase-out of gas boilers, while the reforms to the UK’s carbon markets, energy efficiency standards for the private rented sector, and plans to issue new oil and gas licences in the North Sea all cast uncertainty on government’s commitment to the UK’s near and longer-term climate targets,” it states. “As investors and financial institutions, we need confidence in the government’s long-term commitment to this agenda to allow us and our investee companies to make multi-billion-pound investments in the UK’s sustainable economy of the future. We have concerns that recent events and signals risk eroding this trust, potentially delaying net zero-related investment.”

The letter also warned the UK risked jeopardising its position as both a major exporter of financial services and an early mover in the adoption of the clean technologies and green infrastructure that are set to dominate the 21st century global economy.  

“The UK could and should lead the world in sustainable finance, driving capital towards innovative British companies and creating jobs and skills across the country,” the letter states. “As the Chancellor set out in his Mansion House speech, the UK must strive to be the best place to start, grow and scale new enterprise, including in cleantech, and leadership in sustainable finance can ensure we have the capital needed to make this a reality.

“We urge the government to provide long-term policy certainty to ensure this objective can be achieved, by making clear that important policy pillars driving investment, like predictable carbon pricing mechanisms, the transition to zero-emissions vehicles, and improved energy efficiency standards for the private rented sector and across the country’s housing stock, will not be changed abruptly. This is essential so that our sector can help drive capital towards innovative British companies and infrastructure, and deliver prosperity across the UK, improving productivity, pay and creating 1.7 million ‘green collar’ jobs… We urge you to ensure that the UK remains at the forefront of the global transition to net-zero, and to take full advantage of the short and long-term economic benefits that this will bring.”

James Alexander, chief executive at the UK Sustainable Investment and Finance Association, warned Ministers’ recent comments on various climate policies were “undermining investor confidence and putting the UK’s net zero head start at risk”.

“The major financial players are deciding where to invest, and the UK needs to look both attractive and consistent as a leading destination for sustainable investment,” he said.

His comments were echoed by Otto Thoresen, chair of the BT Pension Scheme, who said: “We call on the UK government to uphold its net zero ambition and take meaningful action over the coming years to demonstrate its commitment. Long-term and consistent policy will help drive real investment into the UK economy.”

The letter comes on the same day as group of green businesses similarly wrote to Sunak urging him to bring an end to the government’s attacks on the decision to expand London’s ULEZ. The group argued more ambitious air quality policies were helping them to invest in the UK and were likely to result in a healthier and more productive workforce.

A spokesman for the Department for Energy Security and Net Zero, said: “We are fully committed to our legally-binding target of achieving net zero by 2050. In fact, between 1990 and 2021 we cut emissions by 48 per cent while growing our economy by 65 per cent, decarbonising faster than any other G7 country.

“Our determination to reach net zero, while we strengthen energy security and grow the economy, is unwavering and we will continue leading efforts at home and abroad on climate change.”

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