Since our last briefing, there has been a range of analysis published on the state of the UK’s climate transition, much of which suggests a slowing down of net zero progress. This slowing down is at odds with developments in other regions, particularly the EU with a number of new rules being brought in, including the ratification of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), the release of corporate sustainability reporting guidelines for public consultation by China’s three major stock exchanges, and the Securities and Exchange Commission (SEC) in the US also introduced a climate reporting requirement, before being forced to put it on hold as a result of litigation. These reflect the ‘legislative overdrive’ other regions are experiencing in terms of incentivising climate investment and formalising sustainability disclosure rules. As the UK moves towards its general election, focus is increasingly on taking stock of where the Government is falling short of its green transition commitments, with the updates below looking to provide an overview of the current state of play.
Key takeaways for non-executive directors
- HM Treasury’s Spring Budget in March has been deemed another missed opportunity for the Government to put forward the policy needed to deliver its decarbonisation targets. Although National Insurance tax cuts and a £120 million boost for the Green Industries Growth Accelerator were announced, analysis suggests “these initiatives are unlikely to move the dial on UK productivity”. Significant barriers to decarbonisation and adaptation investment remain, including mixed sustainability policy signals.
- Recent months have seen the release of several reports showing that the UK is not on track to meet a range of climate targets, particularly regarding energy security. Organisations including SBTI are promoting businesses’ ability to forge ahead with climate strategy delivery, through Beyond Value Chain Mitigation (BVCM) efforts. Such efforts seek to go above and beyond existing science-based targets to fill gaps left by policy stagnation.
- The Transition Planning Taskforce (TPT) published its final transition planning resources in April, including sector-specific guidance on how to undertake a transition planning cycle and research from TPT Working Groups, and a paper on the opportunities and challenges in emerging markets. HM Treasury has extended the TPT’s mandate until at least July 2024, and the FCA, which is expected to consult on policy around ISSB standards in the first half of 2024, has announced that this will also include consultation on the guidance around expectations for listed companies’ transition plans.
- The Transition Finance Market Review (TFMR), a market-led review to explore how the UK can raise capital, invest and obtain financial services to facilitate a transition to a net zero future is expected in Summer 2024. In March, the TFMR launched a call for evidence to inform the forthcoming report.
Key developments in the UK policy landscape that NEDs need to know about
- In its March 2024 net zero policy tracker, Green Alliance finds that the UK has made insufficient progress to meet net zero across the whole economy for the fifth carbon budget period (2028-32).
- March 2024 analysis by Greenpeace reports that the UK ranks the worst in Western European economies for green spending. Based on the International Energy Agency (IEA) government energy spending tracker for 2020-2023, the UK ranks worst for total spending on low carbon and efficient transport, despite transport being the UK’s largest emitting sector.
- In April, the Energy and Climate Intelligence Unit (ECIU) reported that the Government has only achieved three out of the ten major commitments made in its 2021 British Energy Security Strategy.
- The Environmental Audit Committee (EAC) launched an inquiry in March 2024, ‘Climate change and security’, which looks to determine whether the Government’s current climate change mitigation plans do enough to mitigate the dangers of insecurity caused by climate change. With an intended focus on potential solutions and fostering climate collaboration, the inquiry is accepting evidence until 29 April.
- The Local Government Association (LGA) released the results of its survey of local authorities in April, finding that over two-thirds of UK councils lack confidence in their ability to deliver net zero targets. This lack of confidence is attributed in large part to lack of financial support from the government, with 90% of the 300 councils surveyed believing that current net zero funding is inadequate. The ‘excessive bureaucratic burden’ councils are facing in pursuing climate efforts is also identified as a blocker, which is significant considering that local authority-led climate action could save the UK £140 billion in reaching net zero and double the emissions savings than the top-down approach.
- Also in March, former Conservative MP, Chris Skidmore, announced the launch of the Better Earth Initiative, which seeks to “provide the support and investment needed to make emissions reductions not just a hope but a reality.” Set to be formed as a private company, the Better Earth Initiative looks to bring together experts in policymaking, energy infrastructure delivery, and green finance to deliver real-time emissions reductions by 2030.
- In a speech at the Innovation Zero sustainability conference in April, Energy Security Secretary Coutinho stated that the Government has “chosen to give people more time” in adopting energy-efficient technologies, turning instead to a call on industry to “create products that [people] choose.” This comes at a time in which businesses are campaigning for the Government not to lower its ambitions, as seen with the delay of heat pump deployment measures, and in which a larger portion of the public lack confidence in the UK’s ability to meet net zero.
- In March 2024, Jeremy Hunt delivered the HM Treasury’s Spring Budget, outlining the economic and fiscal outlook for the UK and the Government’s commitments to ‘delivering sustainable growth’. As reported by Carbon Brief, as well as an extension to the windfall tax on oil and gas companies (also known as the ‘energy profits levy’) the Chancellor confirmed a continuation of the freeze on the fuel duty on petrol and diesel. Carbon Brief analysis shows that fuel duty freezes, as of 2023, have added as much as 7% to UK emissions.
- A number of environmental groups have warned that the Budget’s failure to back green growth will see the UK falling behind in cleantech investment. Alasdair Johnstone from the ECIU says, “The Chancellor appears to have not got the memo. At a time when the US and EU are competing over-investment in clean industries, there was little in here to attract investment in clean industries.”
- In February 2024, the UK withdrew from the international Energy Charter Treaty (ECT) after efforts to modernise the agreement failed to reach consensus among European countries. The ECT, which dates to the mid-1990s, is an investment treaty that allows fossil fuel companies to sue governments over public climate policy decisions. The UK’s exit was generally welcomed by green campaigners, with the then Energy Security and Net Zero Minister Graham Stuart stating that “remaining a member would not support our transition to cleaner, cheaper energy and could even penalise us for our world-leading efforts to deliver net zero.”
- In March, following the Spring Budget, the Department for Energy Security and Net Zero (DESNZ) announced commitments to support the building of new gas power stations to “maintain a safe and reliable energy source for days when the weather forecast doesn’t power renewables,” angering some green groups. In terms of meeting the UK’s climate targets, the Committee on Climate Change, has said that a small amount of gas-fired power generation was still “compatible with a decarbonised power system” if it makes up no more than 2% of the UK’s power supplies. The budget also announced the Government’s purchase of two nuclear sites from Hitachi for £160 million.
- The ECIU released an analysis in February that calculates that the UK has spent an extra £75 billion on gas over the last two-and-a-half years of the energy crisis, and that there have been a number of opportunities to reduce gas dependency which have not been seized.
- Gresham House, the UK’s largest battery storage fund, has warned that National Grid’s underutilisation of battery technology risks reducing investment, which could have repercussions on carbon reduction targets. Industry experts have reported that slower development by National Grid ESO has meant that demand for battery storage is not matching the level of battery storage coming onto the UK system. In April, the UK Sustainable Investment and Finance Association (UKSIF) called on the Government to build a strategy that provides clarity and certainty for the private sector to invest in UK gigafactories and domestic battery manufacturing.
- March also saw the Government’s confirmation of a delay to its heat pump manufacturing mandates by a year. It has been reported that the delay to the Clean Heat Market Mechanism, which was meant to come into action in April 2024, was a result of pressure from the gas boiler industry. The ECIU has projected that 2023 will have seen the lowest number of heat pump installations since 2012.
- In March, Net Zero Secretary, Claire Coutinho, wrote a letter to the Competition and Markets Authority (CMA) calling for an inquiry into the home heat pump market, to determine whether consumers are ‘getting a fair deal’. The CMA has agreed to consider the inquiry, with more to come potentially in the second half of 2024.
- The North Sea Transition Authority (NSTA) has released a report in response to a November 2023 consultation, committing to developing stricter guidelines for emissions for new oil and gas fields that are expected to begin production after January 2030. The guidelines are anticipated to require all oil and gas fields to be fully electrified or use alternative low-carbon power to receive regulatory approval.
- On 5 April, Ofgem announced a number of new rules for greater protection across the non-domestic energy sector (i.e. businesses, public sector, charities, utilities, etc.). Under the changes, which will come into effect in July 2024, Ofgem is expanding its Standards of Conduct to apply to all businesses, not just micro-business consumers. These changes follow Ofgem’s non-domestic 2023 research report, which found that businesses’ dissatisfaction with energy suppliers can be attributed to poor customer service, poor supplier communication, and unexplained price hikes.
- April analysis by Exeter University’s Environmental Intelligence Centre and Friends of the Earth finds that England could see a 13-fold surge in clean energy generation with policy support. In identifying close to 375,000 hectares of suitable land for new onshore wind and solar farms (less than 3% of land in England), the analysis reports that this identified land could produce 2.5 times the electricity needed to power all households in England. However, this could only be delivered with comprehensive policy support, including the removal of restrictions on onshore wind development and major investment in grid modernisation. This analysis was released at the same time as DESNZ opened a consultation on the barriers to community energy projects in England, which is open until the end of June 2024.
- The London Stock Exchange Group (LESG)’s ‘Carbon Market Year in Review 2023’ reported that carbon allowances in the UK ETS experienced a considerable depreciation by the end of 2023, which was most noticeable following the rollback on key net zero policy in September. Down 34% compared to the 2022 average, to discounts exceeding €25/t by the end of 2023, this depreciation is particularly true in comparison to the EU ETS, which was the world’s most valuable carbon market in 2023. Disparity in carbon prices is identified as a significant concern in terms of the potential tax liabilities faced by UK companies exporting to the EU under the new UK Carbon Border Adjustment Mechanism (CBAM).
- The Government opened its consultation on the introduction of the UK CBAM in late March, which will run until 13 June 2024. The released consultation documents include seven rates of taxes across the identified carbon-intensive sectors and propose that the first accounting period runs from 1 January 2027 to 31 December 2027, with accounting periods becoming quarterly from 2028 onwards.
- On 9 April, the Transition Planning Taskforce (TPT) launched its final set of transition plan resources. The published materials include:
- Sector-specific transition plan guidance for asset owners, asset managers, banks, utilities, food & beverage, metals & mining, and oil & gas
- Sector summary guidance, including high-level guidance for 30 sectors of the global economy
- Guidance on how to undertake a transition planning cycle
- A paper on the challenges and opportunities of transition plans in emerging markets
- Independent advisory pieces from the TPT Working Groups on Adaptation, Nature, JustTransition, and SMEs
| If you would like to know more about Transition Planning for non-executive directors (NEDs), you can access Chapter Zero's Transition Planning Toolkit, designed to support you as a NED, and your board, in overseeing the development and delivery of a credible transition plan. |
- Three environmental organisations – Friends of the Earth, Good Law Project, and ClientEarth – have for the second time pursued legal action against the UK Government concerning its Carbon Budget Delivery Plan released in March 2023. The action raised concerns around the reliance on high-risk technologies and vagueness around proposed policies. In May, the High Court found the climate action plan unlawful, due to delivery risk.
- In April, the Public Accounts Committee (PAC) published a report detailing how the Government is taking too long to develop its approach to investment in resilience, particularly in terms of the rising risks associated with extreme weather events. PAC calls for the Cabinet Office to implement a coordinated investment programme in resilience by 2028.
- Activist campaigner, Gina Miller, has called for ecocide to be criminalised in the UK. Ecocide is defined as: unlawful or wanton acts committed with the knowledge that there is a substantial likelihood of severe, widespread or long-term damage to the environment. The EU Parliament approved new rules on environmental crimes and related sanctions in a new ecocide directive in February – representing the first international body to call for the International Criminal Court to recognise ecocide as a major international crime.
- In April, the European Court of Human Rights ruled that Switzerland had failed to comply with its duties under the European Convention on Human Rights (ECHR) due to failure to meet past greenhouse gas emissions reduction targets or implements a domestic regulatory framework, which UK Parliament has deemed ‘a new precedent for climate change in human rights law’. The landmark ruling is expected to have impacts on climate-related litigation efforts in the UK, both in terms of increasing the quantity and scrutiny of legal claims, and has been cited as ‘another front open in the debate’ about Britain’s future in ECHR.
- Supported by the Good Law Project, MPs have raised a legal challenge against The Charity Commission, following a call for the regulator to remove the Global Warming Policy Foundation (GWPF)’s charitable status. Arguing that the foundation has breached charity law by engaging in lobbying and funding research that is at odds with mainstream science, the legal challenge is a result of the Commission’s failure to make a timely decision, considering that the original complaint by MPs was made in October 2022.
- In February, the Government released its response to the Environmental Audit Committee’s ‘Financial Sector and the UK’s net zero transition’ report. It was confirmed in the report, that the Government will not introduce quarterly reporting on how it is meeting net zero targets while enhancing energy security when it rolls out new oil and gas licences in the North Sea.
- In March, SBTi published a suite of minor revisions to its Corporate Net-Zero Standard, its criteria, and related resources, “to give more companies the confidence to set ambitious climate targets.” The changes to the target-setting resources are classified as ‘non-substantive’, but may be particularly useful for SMEs to be aware of, as they include clarifications to existing criteria for the standard’s SME net zero pathway. In April, a potential relaxing of SBTi’s rules for carbon offsetting led to backlash, and these updates were rolled back. New guidance will be issued in July.
- The Chartered Institute of Internal Auditors for the UK and Ireland (CIIA) announced changes to its Internal Audit Code of Practice to better align with the revised UK Governance Code, as well as new global internal audit standards. The revised draft released in March introduces an additional 36 principles to strengthen the role of internal audit functions. One of the added principles includes that all internal audit functions should account for environmental sustainability, climate change risks and social issues as within their scope, i.e. internal auditors should not be able to deem risks relating to environmental sustainability as beyond their remit. The draft of the revised Code is open to consultation until May 2024.
- The Green Finance Institute released a report in April, Assessing the Materiality of Nature-Related Financial Risks for the UK, finding that nature degradation could cause a 12% loss to UK GDP over the next decade. The report signals that nature-related risks are doubling the scale of physical climate change risks according to Nature and Greening the Financial System (NGFS) scenarios, reinforcing the urgency of mitigation to prevent “double climate change losses.”
- IEMA released data in February that finds that 3 in 4 UK adults are worried about the impact of ‘climateflation’ on bills. The report calls for central banks to abandon interest rate rises as a blanket response to inflation, and instead direct policy towards lowering the price threshold for investing in green projects, namely through introducing dual interest rates which favour green projects.
UK 2024 Election Watch
Net Zero in Key Electoral Battlegrounds
Decarbonisation Timeframes
- Think tank, Policy Exchange, released a report in March that identified that the Labour Party’s power sector decarbonisation plans for 2030 are “infeasible in the timeframe”. The report states that this is due to the lack of skilled workforce, planning reform, and supply chain challenges. Findings do suggest that reaching the current Government’s target of a net zero power grid by 2035 “could potentially still be achieved”.
Policy Wishlist for the Next Government
- In April, the Aldersgate Group released a ‘Programme for Government’, outlining priorities for the next UK Government, across power, industry, built environment, green finance, transport, nature, circular economy, and skills. The critical policy interventions mapped out in the report are backed by a coalition of businesses, academic institutions, and non-profit organisations.
Get Involved
Please take part in the UK Net Zero Business Census. The UK Net Zero Business Census is the largest national research initiative of its kind. The census results will provide invaluable insights into the nation’s net zero journey for policy makers, investors and business leaders.
Coming Up
On 22 May 2024, Prime Minister Rish Sunak called an early UK general election for Thursday 4 July 2024. The general election will be a pivotal moment for the UK's climate policy and business landscape. Depending on the election results, businesses may need to prepare for a shift towards more sustainable practices and potentially significant changes in environmental regulations. Those that can adapt quickly and innovate in green technologies could find new opportunities in a more climate-conscious market environment.
Looking ahead
- In our next issue, we hope to offer analysis of the TPT’s Transition Finance Market Review (TFMR) report expected in summer 2024.
- We also hope to report on the Government’s finalised Green Taxonomy, which was expected to be released early in 2024 but has not yet been published. The taxonomy will provide clarity on activities eligible for labelling as ‘green’ or ‘transition’ finance.
