UK climate policy deep dive: Industrial decarbonisation

Key takeaways for boards

• While some decarbonisation progress has been made, policy uncertainty and chronic underinvestment are hampering the UK’s industrial competitiveness and low-carbon transition.
• All industrial businesses must soon determine their approach to decarbonisation to stay on track with the UK’s carbon delivery plans, manage their exposure to the UK ETS, attract investment and gain a competitive advantage in low carbon production. Boards and companies need the government to provide clear guidance, adequate incentives and enabling policy to drive forward investment in industrial decarbonisation.
• The government’s existing policy pipeline creates ample opportunity to address gaps and accelerate the pace of progress.
  • Clear policy on infrastructure access is essential to guide investment in dispersed industrial sites. The timeline and level of access to electricity, hydrogen and CCS networks remains unclear for many industrial sites.
  • Lowering electricity costs, streamlining grid connections, and protecting against carbon leakage are key to enabling industrial electrification.
  • Stronger government support for efficiency and circularity, along with demand signals like green public procurement, can enhance competitiveness and strengthen the business case for low-carbon innovation and production.

With visionary government leadership and decisive investment, the UK can create an enduring ecosystem of low carbon industry. A thriving UK industrial sector could revitalise regional economies, supply the materials needed for high-growth sectors and new infrastructure, and strengthen UK exports by leveraging a low carbon competitive edge.

Board questions

• Given the evolving industrial landscape, what are the key risks and opportunities facing our business through to 2035? How is decarbonisation considered along other factors (e.g. emerging technologies, policy, supply chain and skills) to strengthen competitiveness and resilience? What are our competitors doing/offering?  What does best in class look like in our sector, in the UK&I and worldwide? What local or sectoral engagement is taking place (e.g. with other businesses in geographic proximity to sites) to explore potential opportunities for collaboration and knowledge sharing around industrial decarbonisation?
• Have we set a robust strategic ambition for decarbonisation? Are we clear what a largely zero carbon economy in 2050 means for our markets, our clients, our products and our operations? Where do we want to be in 5-10 years’ time?
• What does the energy transition mean for the risks (physical, financial, transition, systemic) our business, and our clients’ businesses, are exposed to?
• What progress has been made with developing and delivering a transition plan to decarbonise the business? What are the barriers and enablers to implementation?
• Have we assessed climate related risks, and do we understand how we are integrating adaptation and resilience into our transition plan?#
• What opportunities and risk are associated with a more circularly economy? How does circularity intersect with our climate related transition planning? Are there any opportunities for our business around industrial symbiosis (an approach where businesses collaborate to share resources, including materials, energy, water, and by-products, to reduce waste and improve resource utilisation)?
• How are factors that sit outside of the business’s direct control being considered? Such as access to infrastructure, government policy, regulation and support? What does a changing geopolitical and macroeconomic environment mean for our business?
  • Are we engaging fully with our supply and value chains? Could we do more to support our supply chains in addressing their Scope 1 & 2 emissions to meet our overall decarbonisation targets?
  • Are we keeping pace with current (e.g. TCFD) and evolving (e.g. ISSB) regulatory demands? Are we considering how we can leverage regulation and reporting to support our strategic ambitions and enhance our market position?
  • Have we mapped our policy and transition dependencies sufficiently?
  • What engagement is happening with the government to inform and understand policy development?

• What are we doing to engage with our customers, suppliers and investee companies on decarbonisation? What are our clients, customers, shareholders, investors, and employees asking us about and expecting of us on carbon and climate? Is our response sufficient?
• Is our board equipped to tackle these issues – do we have the right governance structures and competencies in place? Do we have a plan for building board competency where needed?