Purpose on Payday September 2023
SEC Newgate's View
Highs and lows for the green and social impact economy
September started with optimism ahead of Climate Week NCY, widely trailed as a platform to set diplomatic intention and mood music ahead of COP28, the UN climate summit being held in the UAE in early December.
It ended, in the UK at least, with consternation as Prime Minister Rishi Sunak pushed through a range of measures designed to inject a new, more-pragmatic approach into the UK’s net zero mission, but which many saw as merely pushing back the delivery of that target and weakening the UK’s commitment to it.
The Government would fervently disagree with that assessment, instead framing it around avoiding ‘unnecessary’ cost burdens on citizens given its belief that we will achieve the UK’s net zero goals regardless of the changes announced.
The business and the environmental community did not buy that analysis and reacted with a mixture of despair, anger and confusion. Indeed today we have seen a letter in the Daily Telegraph from more than 30 financial services business leaders expressing concern about the policy changes and calling on the Government to uphold its climate ambitions.
For business the concern is around changes in target dates for key policy milestones (such as the 2030 ban on the sale of new ICE vehicles; pushed back to 2035). They are this creates uncertainty which will make it more difficult for business to galvanise the investment and change needed to decarbonise products and operations.
With car manufacturers operating to around seven-year product timelines the investments needed to get EV ranges ready for the original 2030 target have already been made and are being implemented. Manufacturers like Ford and Nissan reacted particularly strongly and have stated they will continue with plans to have EV-only ranges by 2030.
For the green community the concern has been around weakening commitments to the green transition and the fact that the Government’s announcement runs counter to the widely held views, backed by scientists, that the G20 have failed to move fast enough or deliver against existing net zero goals. They argue we need more stringent targets and greater action to deliver net zero, not less.
The fact that the UK announcement came at the same time as global leaders and diplomats were meeting in New York for the UN General Assembly and during Climate NCY which focused on the theme ‘We Can. We Will’ (doing more and acting faster), created further consternation. Some commentators took the view that the UK was relinquishing any hope it may have harboured to be a global leader in the creation of a green economy.
Regardless of which side of the Net Zero debate you sit, what the Government announcement lacked was any clear plan on how we will deliver the new, revised targets. If home heating and EV charging infrastructure is not sufficient to deliver the former targets then what changes now and how do we address that?
For business, that uncertainty (and the fact that net zero by 2050 remains a statutory duty for the UK) does inject more uncertainty and does mean that business has to use its own judgement as to whether it goes beyond the revised UK targets or follows a path that more closely reflects climate science and scientific advice.
That choice brings investment cost and also reputational risk.
At COP28 we will have the results of the first UN Global Stock Take (an assessment of how countries are progressing in delivering the net zero commitments they have made to date). The wide expectation is that the Stock Take will show that we are a long way from meeting the commitments made and that those commitments are in themselves insufficient to deliver the Paris goal of limiting global warming to 1.5C.
Activists and NGOs have already started to warn they may take legal action against the UK Government if they feel the new net zero delivery targets make it less likely that the UK will achieve the 2050 deadline. The results of the Global Stocktake could make that legal risk even greater – and not just in the UK.
For business, it also means that the spotlight will continue to fall on their net zero commitments and reporting.
Another key moment that emerged from Climate Week NYC was the launch of the framework for the Taskforce for Climate Related Financial Disclosure (TNFD). That brings a global standard for the measurement and reporting of corporate impact on nature and biodiversity into being. Based on the Taskforce for Climate Related Financial disclosure (TCFD) reporting standard it accelerates the creation of a global standard for reporting corporate environmental impact and risk.
While greater transparency and reporting creates a level playing field for business it also opens corporates up to greater scrutiny and, in light of concerns that governments’ are not doing enough, also focuses attention on what business is doing to step-up to the plate.
As we look into October, SEC Newgate will be launching our 2023 ESG Monitor which surveys 12,000 people in 12 countries asking their views on corporate behaviour and their expectations of how corporates behave across a range of ESG measures.
Now in its third year, the ESG Monitor has shown a clear trend for the public to expect corporates to behave like good citizens and deliver positive environmental and social impact. The trend is a sharp contrast to some political ideology which has labelled ESG as ‘Woke Capitalism’ and argues that it is a distraction from the equally important corporate focus for making money and creating jobs. The concept that both making money and doing good through business can co-exist appears not to have yet landed in some political discourse.
Through all the noise in September one thing shone clear: Corporates did not welcome the Net Zero goals being watered down because they know they have to do more to decarbonise and deliver social value and impact. The public expects corporates to act and the pressure is growing for all societies’ institutions (commercial and political) to do more.
COP28 will provide another focal point for that debate and set the tone for what is expected for corporates into 2024 and beyond. It is unlikely to involve taking the foot off the net zero throttle.