The government’s inconsistent approach to net zero is confusing businesses ready for a change
Faced with labour shortages, rising costs and falling consumer spending, business confidence has dropped to levels not seen since the financial crisis of 2008. The government isn’t doing enough to restore this confidence. And it isn’t preparing businesses for a net zero economy either – which would be the only enduring route to prosperity.
A major barrier hindering business engagement and investment in net zero has been a lack of clarity and consistency in the government’s approach. Poor market signals, policy u-turns, and inconsistent public funding undermines business confidence in the demand for future green markets and services. We know this, as a majority of senior business leaders are relying on government policy and regulatory changes to help achieve their company’s net zero ambitions.
In the spring budget in May, a new windfall tax on oil and gas profits was announced, but it included a generous tax allowance for investment in new oil and gas fields. In October, Liz Truss’ government flirted with the idea of overturning the fracking moratorium. By December, the government relaxed planning restrictions on onshore wind and approved a new coal mine in Cumbria in the same week. On top of all of this, the government’s own Net Zero Strategy was found “unlawful” by the High Court in the summer. It’s fair to say that, this year, businesses have received mixed messages on how serious the government is on net zero.
Inconsistent policy signalling around net zero is especially pronounced in the financial sector. The UK has been the top ranked global financial centre for green finance for two consecutive years, ahead of Amsterdam, Singapore, and New York. The UK’s position is largely based on the government’s regulatory approach, providing strong market signals that net zero is the future of the financial sector – including the commitment to become the “world’s first net zero financial centre”. Despite the rhetoric, progress this year has faltered with the government delaying measures aimed to improve transparency and accelerate alignment with net zero.
First, it withdrew plans to include sustainable disclosure requirements in this year’s Queen’s speech amid a “wider retreat by the government from tightening corporate governance”. These disclosures are needed to help guide financial decision-making by informing businesses, investors, and consumers of the environmental risks they face and create through their investments. Yet the government decided to leave their introduction up in the air.
Then, it delayed the publication of the Green Finance Strategy update. The strategy, first published in 2019, set out how the financial sector would align to a net zero future. The update should have been published at the end of this year, reflecting on the progress made so far. Instead, we will have to wait until “early 2023” to see it.
Finally, the UK has missed its legal obligation to introduce the UK green taxonomy into legislation. The taxonomy provides a common definition of what economic activities can be considered green, with the aim of tackling greenwashing. There’s a strong appetite for this: just one per cent of financial advisers and wealth managers “completely trust” claims made by ESG and green funds. Earlier this month, the government announced it will repeal its legal obligation to make taxonomy-related rules by January 2023 and will instead review its approach. This delay is disappointing and means the UK will fall further behind other markets, like the EU, who have introduced their taxonomy.
In delaying necessary action, the government risks undermining business confidence in its approach to net zero, which has given the UK its strong reputation to date. Upcoming strategies’ updates and refreshes are opportunities to set out clear timeframes, interim targets, and long-term consistent policies. Across the transition, but especially during a recession, businesses require above all: guidance, clarity and support.