Investors will be needed to shift hundreds of billions of pounds if the UK is to meet its climate goals. But they need clarity from a pre-occupied government

By Stephanie Pfeifer

Britain’s decision to trigger the negotiation of its departure from the EU presents significant challenges to the UK’s climate agenda and the investors who will ultimately deliver it.

With two years of uncertainty looming, the UK government will need to provide a clear signal of its commitment to climate action. Pension funds and other major asset managers must be persuaded to mobilise hundreds of billions of pounds in capital to ensure the UK delivers on its pledge to substantially decarbonise the UK economy.

Stability and predictability in climate-related policy is essential for investment decision makers. To deliver this, the government must reinforce the Climate Change Act 2008 and deliver long term clarity about the direction of UK policy – especially once the UK has left the EU.

Moreover, this long-term vision must be built around stronger ambition and aim to cover all the elements required under the Paris Agreement and set an unequivocal timetable for developing a comprehensive strategy that will run to 2050.

UK ministers are legally required to bring forward a national emissions reduction plan “as soon as reasonably practical”. Investors want this to set out how the UK will drive the pace and scale of systemic change across a number of key sectors in order to substantially shift the UK economy away from fossil fuels.

That’s why on the same day the UK prime minister opted to trigger Brexit negotiations, the Institutional Investors Group on Climate Change (IIGCC) – which represents nearly 140 institutional investors in a total of 9 European countries who between them manage assets in excess of €18tn – published it’s call for the UK government to bring forward an ambitious long-term UK decarbonisation strategy.

In a new report, IIGCC sets out five core general principles that investors believe must feature strongly to make an any country’s energy and climate plan effective, and how these can be applied within the UK context by the Department of Business Energy and Industrial Strategy (BEIS).

Any UK reductions plan must confirm that a robust carbon pricing mechanism will form the principal driver of long-term decarbonisation efforts.

To ensure investors know what conditions will govern infrastructure and other real asset investments over the next 10-25 years, the UK’s national decarbonisation strategy must specify measures and targets for three critical sectors – power generation, buildings/heating and transport – which together account for over two-thirds of GHG emissions.

In addition, the UK needs to drive a fundamental shift in mindset across all parts of government to ensure consistent policy supportive of investment alongside efforts to embed new and emergent technologies fully into the UK’s long term industrial strategy and infrastructure development programme.

'Great Repeal Bill will ensure that the whole body of existing EU environmental law continues to have effect in UK law' — James Murray (@James_BG) March 30, 2017

Regardless of Brexit, for the UK power generation sector investors recommend that any change to the levy control framework – which supports low carbon electricity – reflect the need to encourage the development of new projects. Without this, the set of future investment opportunities is likely to reduce significantly. The UK also has a golden opportunity to ensure policy underpins development of a flexible, connected power grid, which can help keep the lights on and a lid on electricity prices.

For the buildings (and heat) sector, binding regulations are needed that ensure all new homes, public and commercial buildings are built near-zero emissions, and which require the widespread energy efficiency retrofitting of existing public and commercial real estate. Energy Performance Certificates must also be upgraded to become a dynamic measure of ongoing operational performance and, sooner rather than later, mortgage lenders must be asked to take climate related factors into account when assessing risk.

Finally, investors favour the tightening of long-term targets to decarbonise transport, and call for the UK to simultaneously support the roll out of charging stations and energy storage technology for electric vehicles; improve combustion engine and fuel efficiency; and ensure that all liquid fuels are priced to bear the true cost of the environmental and social damage they cause. It must also pursue a level playing field for new ultra-low emissions vehicle technologies (including hybrids and fuel cells).

Just days after the Brexit referendum, UK ministers set a fifth carbon budget – the UK’s legally binding and ambitious climate target – for the period 2028-32 that was also swiftly transposed into law. In its Brexit White Paper the UK Government also re-stated its commitment to domestic action and global leadership on climate change.

If Beis now produce a good plan that addresses these requirements, investors will be the first to cheer.

Stephanie Pfeifer is CEO of the Institutional Investors Group on Climate Change.