Green sticks and green carrots emerge in race to decarbonise the UK

By Andrew Adie

Every day brings further pressure on all sectors of the economy to accelerate their commitments, and publish their plans, for being more sustainable.  The UK government’s determination to be a leader in the new global green economy means that businesses are facing mounting pressure to commit to being net zero by 2050.

Next week, on 5^th May, a Government consultation on how mid and small cap companies, larger private companies and LLPs should report to TCFD (Taskforce for Climate Related Financial Disclosure) standards closes.

It marks a significant acceleration in the Government’s stated ambition that the entire UK economy will report to TCFD standards by 2025. Large cap companies and pension schemes will have to do so by 2022.

This consultation provides an opportunity for mid and small cap, private and LLP companies to put forward their views and ensure their voice is heard. Yet, in reality the ship has already sailed on TCFD reporting. Businesses can protest if they wish, but it’s unlikely to get them very far.

While TCFD reporting will give investors a benchmark to judge how climate change will impact the business models, revenues and valuation of all UK businesses, this is just the beginning.

The Government’s commitment for the UK to be net zero by 2050 (and achieve a 78% reduction in carbon output vs 1990 levels by 2035) will require all business to have and implement a sustainable business plan and show they are delivering real environmental benefits.

So far, just 30 of the FTSE 100 have signed up to be net zero by 2050 but it’s a key outcome for the UK Government as chair of the COP26 UN climate change convention, so pressure will rapidly build. Companies will also be increasingly watched by regulators, politicians, consumers and activists to ensure that the progress and initiatives they report publicly are ‘real’ and stand-up to scrutiny.

As one part of that oversight HM Treasury, last week, published a report, initially focused on financial services, calling for action to stop ‘green-washing’. In it was a recommendation that the Financial Conduct Authority should have greater teeth to prevent greenwashing and committed to undertaking a consultation with the FCA on whether climate impact labelling should be mandatory for financial products offered to consumers, including on pensions and mortgages.

All companies are now firmly on the front line for decarbonising the economy, with governments around the world setting more stringent targets to deliver net zero.  All of this changes the rules of engagement and communications requirements for companies to all of their stakeholder groups: political, consumer, corporate, regulatory and staff. 

Setting a strong narrative, communicating your plan, demonstrating progress to meet targets and having a strong purpose that defines your corporate mission are now as important as financial performance.

Yet it is not just the corporate world that is feeling the heat. Yesterday (28^th April) the Public Accounts Committee (PAC) published a report on net zero delivery which accuses the Government of failing to have a credible plan to deliver its climate targets. The PAC recommends that reform of the tax system should be a key part of that plan, with carbon intensive industries and activities facing higher taxes and sustainable activities getting tax reductions and incentives.

Many would welcome an approach that prioritises green carrots as much as green sticks. In fact, research from Green Alliance from this week has found that 60% of people support green taxes to make environmentally damaging behaviours more expensive.

All this points towards a more equitable pathway to a green future. Greening the economy can’t just be driven by diktats and regulation, the incentives also have to be in place to direct consumer behaviour, corporate investment, social enterprise and financial systems to adopt lower carbon, more sustainable and socially beneficial behaviours.

For corporates trying to navigate through the wash of announcements, impending reporting requirements, political debate and activist and consumer demands the message is clear. To quote Mark Carney: “A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?”

Corporate reputation now hinges on that net zero plan, on having it, sharing it and being seen to deliver against it. Amid the swirling storm of initiatives, claims and counter claims, pressure from and on politicians and demands from investors, activists, staff and customers, that simple fact remains.

Beyond that lies the opportunity to build a positive narrative, based on purpose and a mission to go beyond the minimum requirement to be net zero by 2050 and to change the environment and society for the better but that is stage two in the journey to a green and good future.