Investors demand clarity from government on net zero

Investors managing £1.5 trillion in assets have warned the government that a lack of clarity on green policies risks stalling investments needed to reach the 2050 net zero target.

Ministers have been told that recent signals around key policy areas, including a ban on the sale of new petrol and diesel cars by the end of the decade, could stop the finance sector from investing the £50 billion to £60 billion a year needed to hit the emissions goal.

The warning comes in a letter sent to the prime minister and signed by 36 financial institutions that are members of the UK Sustainable Investment and Finance Association (UKSIF) including Jupiter Asset Management, Royal London and Scottish Widows.

James Alexander, UKSIF chief executive, said: “The global competition to capture billions of pounds of private investment in the clean industries of the future is intense. Ministers’ recent remarks are undermining investor confidence and putting the UK’s net zero head start at risk.”

Investors have asked for more certainty over long-term policy in areas including the transition to electric vehicles, improved energy efficiency standards for housing and more predictable carbon-pricing mechanisms.

Kemi Badenoch, the secretary of state for business and trade, has previously told cabinet colleagues that electric vehicle targets being imposed on the industry could damage investment in Britain, discussing concerns raised by the car manufacturing industry.

Under a rule to be introduced in January, carmakers will be required to ensure that at least 22 per cent of their new sales in the UK are of emission-free models, rising each year to reach 80 per cent by 2030. Companies that break the rule will have to pay £15,000 for every non zero-emission car sold.

Alexander said that in recent years there has been a degree of positive policy signals, allowing the finance sector to invest with confidence in the infrastructure for the green transition.

“The problem is, as soon as the government starts making comments or noises suggesting that might not actually be the direction of travel after all, it saps the confidence of private investors and we need that money to make this transition possible,” he said.

In July, changes to the UK’s carbon-trading scheme included offering more allowances for CO2 emissions from polluting industries such as steel production. This pushed carbon prices to trade at a steep discount compared with those in Europe, sparking warnings that it would increase fossil fuel use.

In the same month, Rishi Sunak said that the government would press ahead with awarding more than 100 new licences for North Sea oil and gas exploration before the next election. The government has said that these new licences will slow the decline in UK production levels rather than see them increase above current levels.

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.”