Even Biden’s green subsidies can’t solve the climate crisis without private money
Addressing the impacts of climate change, and making ourselves resilient to them, requires even more than what governments are able to offer, writes Nicholas Lyons.
Anyone opening a newspaper over the last few months will have seen the headlines – forest fires, droughts, floods. Addressing the climate crisis can seem like an uphill battle. But in the City there is cause for optimism. Business is putting its money where its mouth is: since 2021 GFANZ members, who hold $85tn of private capital, have made commitments to hitting net zero emissions targets by 2050. They include more than 550 financial institutions, insurers, and asset managers across 45 countries.
The road to net zero requires financing, and lots of it – about $100tn or more between now and 2050, according to some estimates.
With our national purse under strain, private finance will need to bridge the gap. But that requires the government to create the right business environment to catalyse growth.
This is what I’ll be discussing at Canada Corporation’s annual Net Zero Delivery Summit (NZDS) at Mansion House this week. The Summit will convene government representatives, financial and corporate leaders, and trailblazing climate solution providers from around the world.
It’s impossible for governments alone to provide the scale of financial support required to address the challenge. Even the $370bn worth of investment, grants and subsidies in the US Inflation Reduction Act is a fraction of what is needed.
But what the US has got right is the role that financial incentives play in unlocking investment in key industries for decarbonisation. There has been recent news that the development of the UK’s electric car battery industry is under threat, and we saw the collapse of battery manufacturer Britishvolt earlier this year. A more concerted effort is needed to direct capital into these crucial new industries.
But it’s still a long road between here and unlocking the significant investment required. I agree with Chris Skidmore’s recommendation to review how policy can incentivise investment in decarbonisation via the tax system and capital allowances.
There’s also plenty of untapped opportunity in the UK’s pensions sector, which has approximately £3tn in assets under management. Unlocking this capital for high-growth firms such as those in green tech can be a game-changer. The government should consider allowing smaller defined contribution pension schemes to be consolidated to support this approach. I’m working with leading investors, asset-managers, and firms collectively to invest in a £50bn Future Growth Fund assembled from 5 per cent of the UK’s defined contribution pension pot. The fund could invest in a wide range of green technologies.
While investment in emerging sectors is important, we mustn’t forget the pivotal role of transition finance in delivering net zero. From aviation to transport, we will only achieve net zero if the owners of high-emitting assets are supported in their efforts to decarbonise. Assigning a scarlet letter of shame to these industries will not help us reach our climate goals.
We need to ensure companies at different stages of their journey towards decarbonisation are still able to access private finance. Not just to support their day-to-day activities, but also to facilitate their effort to reduce emissions in a manner that is financially and environmentally sound.
Net zero is the growth opportunity of the 21st century, worth up to £1tn to UK businesses by 2030. Positioning the UK as the go-to partner for countries and companies looking for capital and expertise and ensuring we have the right policies in place can empower us to reap these rewards.