UK Climate Failure “Chills” Investor Confidence
Whoever wins July’s general election will need to prioritise climate ambition and provide clear policy signals for investors.
With the UK High Court having now dubbed the government’s net zero strategy unlawful for the second time, the country is now considered a climate laggard, leaving sustainability-conscious investors rudderless.
The decision has been interpreted by many as yet another setback for the government’s credibility on climate change.
“[The lack of climate ambition and clarity] seriously chills investor confidence at the expense of the UK reaching net zero by 2050,” Leo Mercer, Policy Fellow at the London School of Economics’ Grantham Research Institute (LSE GRI), told ESG Investor. “[It] sends the complete wrong signal to both investors and nation states, who may correctly surmise that the UK is not serious about climate change.”
The High Court said that the Carbon Budget Delivery Plan (CBDP) did not provide enough evidence of policies in place to reduce greenhouse gas (GHG) emissions, in line with the government’s legally binding commitments under the Climate Change Act.
It further stated that the UK Secretary of State was overly confident that all policies and proposals outlined in the CBDP would be fully delivered – yet evidence of current progress did not support this.
Consequently, the court ordered the government to publish an updated net zero strategy within the next 12 months – suitably demonstrating how the UK will achieve its legally binding carbon budgets and commitment to cut emissions by more than two-thirds by 2030.
With a general election slated for 4 July and Labour currently predicated to win, this responsibility may well fall into the opposition party’s lap.
“By attempting to turn climate change into a culture war, [Prime Minister] Rishi Sunak has made it very easy for Labour to demonstrate that it has a much stronger economic plan based on green growth,” said Ed Matthew, Campaign Director at think tank E3G. “With the Conservatives badly lagging in the polls, further efforts by the government to undermine the UK’s climate leadership will not only upset British business – it will consign the party to electoral oblivion.”
It is nonetheless worth noting that Labour recently dropped its pledge to invest £28 billion a year on green technology – thereby muddying the waters on its climate-related intentions.
“This latest legal challenge has confirmed beyond doubt that the UK government cannot simply cross its fingers and hope that uncertain policy and high-risk technologies will deliver,” said Sam Hunter Jones, Lawyer at environmental law firm ClientEarth.
Another let down
This is not the first time that the UK government’s net zero strategy has been described as lacking. In 2022, ClientEarth, the Good Law Project and Friends of the Earth challenged the country’s Net Zero Strategy and won the court’s support. Back then, the government was tasked with reworking its strategy within eight months.
The CBDP was subsequently unveiled in March 2023 – but the three challengers still did not think the strategy met minimum legal standards. As such, they decided to take the government back to court in February this year.
The 2023 iteration of the government’s net zero strategy actually displayed reduced ambition in certain sectors, Mercer claimed. “[This version] was less ambitious in areas such as industrial resource efficiency, near-term rollout of heat pumps and afforestation targets.”
The government has demonstrated decreasing climate ambition across the board, having watered down several climate policies – including pushing back a commitment to end the sale of new petrol and diesel cars from 2030 to 2035.
“This new positioning went down like a lead balloon, with the international community interpreting it as a signal that the UK was no longer serious about climate leadership,” said Matthew.
Last year, the Climate Change Committe (CCC) found that the UK was not on track to meet its 2030 climate targets – suggesting the UK had credible policies in place for less than 20% of the emissions cuts needed to meet its sixth carbon budget, which runs until 2037.
The government has since revealed it would allow oil and gas drilling under offshore wind turbines. It was also found this month that a new multi-billion-pound UK-based net zero project led by fossil fuel firms would generate more than 20 million tonnes of CO2 – despite claims that it would utilise carbon capture technologies.
Clear steer
From an investor’s perspective, consistent policy signals are essential to building confidence and incentivising green investment.
“Ambitious plans to tackle climate change risks, accompanied by concrete near-term steps for implementation that take full advantage of transition opportunities will help signal that the UK is committed to fostering long-term sustainable growth,” said Oscar Warwick Thompson, Head of Policy and Regulatory Affairs at the UK Sustainable Investment and Finance Association (UKSIF). “That is a much more compelling investment prospect than policy uncertainty and flip-flopping.”
Last year, financial institutions collectively managing £1.5 trillion (US$1.89 trillion) wrote to Sunak, asking the government to facilitate annual investments of £50-£60 billion to reach net zero by 2050.
Earlier this month, savings and retirement firm Phoenix Group –, which manages around £280 billion in assets – argued that more should be done to mobilise the country’s multi-trillion-pound pension system to fund the energy transition at the local government level.
The UK-based firm also outlined four core net zero recommendations for the government, such as expanding HM Treasury’s mandate to incorporate net zero and evolving climate considerations within fiduciary duty – including setting up a fiduciary duty industry taskforce.
“The government should focus on removing longstanding barriers to investment by updating the energy grid and providing a clearer pipeline of investable opportunities in the economy,” suggested Warwick Thompson. “The UK needs to re-establish its global leadership position on ambitious climate action, and our policy stance is key to turning that around.”
Despite a lacklustre performance in recent months, there is still hope that the UK government will be able to keep temperatures below 2°C of warming in the country.
“They have to recognise that the scale and pace of structural change must be rapid and backed up with targets and policies to deliver net zero,” said LSE GRI’s Mercer. “This election, political parties [need to] be bold, ambitious, and prepared to implement the changes this country and the planet needs.”
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