PM underscores the green transition but investors will need to play a key role

Gradually, the distant pledge of net-zero carbon dioxide emissions is becoming a series of real policies which will need industry and investor support

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  1. Rob Morgan

Building back better and greener is front and centre of most governments’ minds right now, and Prime Minister Boris Johnson’s recent announcement reaffirms it is no different for the UK. His Ten Point Plan for a Green Industrial Revolution is designed to help repair the economic damage from Covid-19, tackle climate change and put the country on track to meet its target of reaching net-zero carbon emissions by 2050.

It’s a roadmap rather than a detailed plan and incorporates some previously announced commitments. More details in terms of strategy is expected to emerge in coming months, but firm pledges include the end of sales of petrol and diesel cars and cans from 2030, 10 years ahead of the previous schedule, and a promise to quadruple the quantity of offshore wind capacity within a decade. Meanwhile, support for hydrogen, carbon capture and cleaner home heating are expected to create hundreds of thousands of jobs.

The green revolution is set to gather pace on the other side of the Atlantic too following Joe Biden’s election as US President. He is likely to become a leader among the carbon fighters, joining forces with Ursula Von Der Leyen, the President of the European Commission. The EU has set out a ‘Green Deal’ plan to transform the bloc into a leader of a cleaner future and we can expect the US to move closer to Europe in terms of strategy. With China also vying to be an environmental leader the world’s greatest powers are in apparent unison for the first time.

Among the UK government's plans is a desire to make London a global centre for green finance, highlighting the integral role markets will need to play in the green revolution. The scale of total funding required ultimately needs to dwarf that which the government is committing. The burden of instigating meaningful change, therefore, rests not only on government to set policy, but on business to implement it and financial markets to provide the capital where required. Huge investment will be needed from across the private sector to make the plans a reality.

Despite frequent deadlock at international level between countries, many companies have taken it upon themselves to devise strategies of their own, driven by their own conscience or by the fact that legislation will arrive sooner or later. In addition, they are addressing the growing demands for action from their stakeholders – including customers, employees and shareholders. Microsoft, for instance, has pledged to become carbon negative by 2030, not just in its own business, which is already carbon neutral, but throughout its supply chain too.

As well as providing capital, the investment industry also has a vital role to play in holding companies to account on the green transition. Ultimately, businesses are run for shareholders, and if they demand action not just on financial performance but on environmental issues then chief executives have to take them seriously. Companies will not just face scrutiny over their balance sheet but, increasingly, their carbon intensity and other environmental metrics as well.

Through choosing socially responsible investments all investors, large and small, can put their weight behind this movement. If more investors vote with their feet by backing companies that take carbon emission and other environmental issues seriously then it puts more pressure on businesses not doing enough to address them. If these businesses struggle to attract shareholders and lenders, they could face a deteriorating share price or higher borrowing costs. Gradually it costs them more money to do business. They also have reputational risk to consider, as well as the prospect of being left behind by industry change or swamped by legislation and higher taxes as government policy is rolled out.

Individual investors often think they can’t make much difference on global issues such as carbon emissions, but that’s not the case. They can help by making conscious decisions with their own investments, prioritising sustainability and supporting industries to evolve.

Find out more about socially responsible investing here.

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