A group of UK financial institutions, representing £1.5 trillion in assets under management, have warned that the government’s recent rhetoric risks stopping the finance sector from making the transformative investments needed to reach net zero and grow the economy.
The warning comes in a letter to the Prime Minister, signed by 36 financial institutions that are members of the UK Sustainable Investment and Finance Association (UKSIF), including Scottish Widows, Aegon, and Royal London.
The letter expresses “concern” at the government’s recent public statements and policy signals, which the institutions say have “cast uncertainty” on the government’s commitment to the UK’s near and longer-term climate targets.
The institutions warn that, at the current pace, the £50-60 billion per year of investment needed to reach net zero will not be achieved. This figure is based on the Climate Change Committee’s guidance for the Sixth Carbon Budget, which estimated that investment into low-carbon sectors “must scale up to £50bn each year to deliver net zero, supporting the UK’s economic recovery”.
Earlier this year, the UK received a damming review by the CCC, calling the country “strikingly unprepared” for the impacts of the climate crisis and suggesting there had been a “lost decade” in efforts to adapt to the impacts of global heating.
“The global competition to capture billions of pounds of private investment in the clean industries of the future is intense,” said James Alexander, Chief Executive of UKSIF. “Ministers’ recent remarks are 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 added.
The letter highlights a number of government policies that have raised concerns among financial institutions, such as the proposed delay to the phase-out of new petrol and diesel cars from 2030, the government’s review of the UK’s carbon markets, and plans to issue new oil and gas licences in the North Sea.
Getting back on track
The UKSIF believes there is still a path forward, suggesting that the UK “could and should lead the world in sustainable finance.”
The institutions urge the government to provide long-term policy certainty to ensure the UK is a world leader in sustainable finance. They say that this would require the government to make clear that important policy pillars, such as carbon pricing, the transition to electric vehicles, and improved energy efficiency standards, will not be changed abruptly.
“We call on the UK government to uphold its net zero ambition and take meaningful action over the coming years to demonstrate its commitment,” said Otto Thoresen, Chair of the BT Pension Scheme. “Long-term and consistent policy will help drive real investment into the UK economy.”
“Holding sustainability considerations at the core of this will lead to a more prosperous economy, increased growth and job creation which in turn will help secure our members’ pensions,” he added.
The UK government has announced that it will adopt the climate-disclosure standards from the ISSB as the foundation for future legislation or regulation requiring companies to report on sustainability risks and opportunities. This will help investors make better-informed decisions, allocate capital more efficiently, and ensure the smooth functioning of the UK’s capital markets.
