Rishi Sunak goes green for Cop26 – but faces business fears over eco plan for the City 

267

View
comments

Rishi Sunak’s plans to force hundreds of Britain’s biggest firms to go green to tackle climate change risk driving companies abroad, businesses have warned.

The Chancellor, who showed off a green ministerial box at COP26, unveiled his proposals in more detail this morning.

The move will impose requirements on all UK-listed companies to set out maps to ‘transition’ to net zero in the coming decades, with firms assessed annually.

But business leaders said they need more support and funding to meet the targets – while there are fears the red tape could drive large them to base their HQs abroad.

Planet Mark CEO Steve Malkin called for more support to all businesses so they can consistently reduce emissions.

City veteran Alasdair Haynes, chief executive of stock exchange Aquis, said it was ‘good that climate disclosures are put into companies’ reports and accounts’.

But he warned there needs to be ‘proportionality’ because fast-growing firms ‘face high costs to complete their reporting’.

Vice Chair of Metals and Mining at WoodMac Julian Kettle warned of the ‘implausibility of carbon reduction by 2030 that is consistent with net zero by 2050’.

And Director of the Oxford Sustainable Finance Programme Ben Caldecott added the country needs to focus on the ‘quality and integrity’ of the pledge, not the figure.

Mr Malkin continued: ‘The Chancellor is absolutely right to say it’s essential for the UK’s largest firms and financial institutions to go net zero, and that their efforts should be scrutinised.

‘However, the government must also look to provide more practical support to all businesses, especially SMEs, so they can not only start reducing emissions but consistently do so, ideally getting every company to net zero by at least 2050 or sooner.

‘Over the last three months leading to COP, thousands of businesses right across the UK have told us during our Zero Carbon Tour, supported by BEIS, that they want to play their part in the fight against climate change.

‘They are being asked to respond to corporate and government demands for their own net zero commitments but many do not know where to start or understand the practical steps they must undertake to reduce, measure and report their emissions.

‘There is an urgent need to provide more guidance and support on how all businesses across the UK, not just the largest corporates, can decarbonise to benefit the environment and society, especially hard pressed SMEs who doing so much for our economy and are here to support out zero carbon transition.’

Mr Kettle from WoodMac, said: ‘I’ve previously highlighted the implausibility of carbon emission reduction by 2030 that is consistent with achieving net zero by 2050.

‘The deck is very much stacked against mining companies, who are aware of the challenges of developing supply, yet investors, policy-makers and wider society are seemingly unwilling to assist in enabling faster development.

‘Greater recycling will undoubtedly be part of the solution, but primary extraction will carry the lion’s share of the load.

‘Even if all these stars were to align, the sheer number of projects that would need to be developed concurrently presents a new problem: it would stretch the capacity of every function required to deliver them.

‘A perfect storm of demand for all disciplines, from mining engineers to regulatory and permitting departments, suppliers and contractors, would make the challenge insurmountable.’

And Mr Caldecott added: ‘[It’s] exciting to see the sheer quantity of new net zero commitments from banks and investors.

‘$130 trillion of assets with net zero targets is a 25-fold increase since the UK took on the COP26 Presidency in 2019.

‘But we urgently need to focus on the quality and integrity of these promises, not simply their quantity.

‘And we need to ensure that commitments actually support the real economy transition.

‘The @antonioguterres’s announcement to convene a group to examine these issues is timely.

‘I do urge some perspective on #GFANZ $130trn. Almost none of the assets are net zero today. $130trn hasn’t been promised for deployment into climate solutions.

‘These assets are not fossil fuel free and new fossil infra is still being financed. We have lots more to do together!’

Mr Sunak promised to turn the UK into what he said will be the world’s first net-zero aligned financial centre.

He said listed companies in the UK will need to publish a transition plan that sets out their path to green their businesses.

Those that fail to make enough progress, or whose plans are deemed too weak, could face sanctions including fines or even removal from the stock exchange. 

Critics of Mr Sunak’s plans fear they could lead to firms quitting the City of London to avoid the red tape.

Ninety One Plc, a global investment manager based in London and Cape Town, warned a slow transition to tackle climate change was needed.

CEO Hendrik du Toit told Bloomberg: ‘If we stop all financing of what I would call dirty assets, then other forms of finance will come in, own them and not transition at all. That is the real risk.’

Gunther Thallinger, the chair of the Net Zero Asset Owners Alliance, said: ‘The transformation way from fossil energy is driven by [these] science-based pathways.

‘Such an approach allows for not only a viable, but also a just transition. A simple ‘no investment in fossil energy – especially oil and gas’ would create social and economic inequities, and thus would ultimately slow down the crucial transition into renewable energy.’

He added: ‘Alliance members are already changing their investment decision-making, enabling them to work effectively with others on the transformation at the beginning of this decisive decade.

‘With science-based short-term targets for portfolio emission reductions; sector emission intensity reductions; company engagement; and financing the transition, plus neutral target-monitoring established in the form of a UN-led secretariat, we have made robust first steps.’

Director of Sustainable Capital PLC Professor Kevin Haines said there was a risk smaller firms would not be able to make the leap as easily as large ones.

He said: ‘While big corporations can dedicate whole teams to meeting net zero targets and complying with regulations, smaller businesses don’t have the capacity to process this.

‘The issue is that we have a web of regulations and goals at present that are challenging for businesses and investors to understand.

‘If it is difficult for large companies to comply, it is virtually impossible for those with fewer staff and resources to do so.

‘There are 5.5 million small businesses in the UK, accounting for three-fifths of employment and around half of the turnover in the UK private sector.

‘We need to drive down the cost of technologies such as electric vehicles and heat pumps; small businesses have a crucial part to play in doing so due to their ability to be highly innovative and agile.

‘Their capacity for innovation will be critical in producing the renewable technologies required to meet net zero targets.

‘It is therefore vital that we place small businesses at the heart of the conversations around mobilising finance.’

The move comes after years of uncertainty for the financial centre after Brexit and Covid, which among other factors has seen millions of employees working from home rather than the heart of the City.

Ministers hope the scheme will lead to a rapid shift away from investment in polluting industries and help drive progress towards the Government’s target of making the UK carbon neutral by 2050.

The Treasury said the plan would make the City ‘the world’s first net zero-aligned financial centre’.

But the compulsion is likely to prove controversial with some, and could have big consequences for firms in sectors such as oil, gas and mining – BP, Shell and mining giants Rio Tinto and Glencore are among those listed in London.

The Confederation of British Industry gave the idea a cautious welcome last night, saying business was already ‘upping its game’.

But the trade body warned it was vital ministers work with colleagues abroad to produce ‘globally consistent’ rules to prevent British-based firms being penalised.

Rain Newton-Smith, CBI chief economist, said the moves were ‘steps in the right direction’ but that it was critical they did not apply only in the UK.

‘These need to be followed up with further action from policy makers to develop globally consistent climate and sustainability disclosure standards,’ she said.

Sam Alvis, of the Green Alliance, said ‘trillions of dollars are still flowing to fossil fuels every day and voluntary measures have not got us far enough’.

He added the new system would have to have ‘strict criteria with legal bite’.

City veteran Alasdair Haynes, chief executive of stock exchange Aquis, said it was ‘good that climate disclosures are put into companies’ reports and accounts’.

But he warned: ‘You have to have proportionality. A lot of fast-growing companies are facing high costs to complete their reporting, especially when you look at the detail of what’s needed.’

The arrangement, known as the Glasgow Financial Alliance for Net Zero, will see firms responsible for 40 per cent of all global investment sign up to net zero goals.

Mr Sunak’s deal with 450 of the world’s biggest banks, pension funds and insurance firms will see the assets begin to ‘transition’ to lower carbon sectors.

At present, firms are under no obligation to go green. A recent assessment found barely half of all on the FTSE 100 have made any commitment to move to net zero.

Under the new arrangement, a ‘transition plan taskforce’, composed of industry and academic leaders and regulators, will draw up standards that the plans must meet.

Sources said the quango is designed to prevent firms ‘greenwashing’ their records by adopting meaningless pledges. The rules will be introduced in 2023 following consultation with business.

Mr Sunak also told the world this morning that more public money was needed to fund the global fight against climate change but the private sector needs to step up.

The Chancellor said developed governments are going to meet their six-year-old promise to send $100billion to developing countries in 2023.

He said: ‘While we know we are not yet meeting it soon enough, we will work closely with developing countries to do more and to reach the target soon.’

But he added: ‘Public investment alone isn’t enough, so our second action is to mobilise private finance.’

The Chancellor announced financial institutions controlling 40 per cent of global assets will align themselves to the Paris Agreement’s 1.5C limit for global warming.

He said: ‘Six years ago Paris set the ambition. Today in Glasgow we’re providing the investment we need to deliver that ambition.’

Mr Sunak was speaking ahead of Janet Yellen, the US Treasury Secretary, who said climate change is a huge opportunity for businesses.

She said: ‘The old notions of why the private sector should decarbonise because the planet must be put before profit are no longer universally true.

‘Green technologies have cost curves that continue to plunge, in many cases it is simply cost effective to go green.’

She added: ‘Addressing climate change is the greatest economic opportunity of our time.’