Authored by Daniel Harman, co-founder at alternative investment platform Darksquare
In March 2023, the IPCC released the fourth and final instalment of its AR6 report, accompanied by a chilling message from the UN Secretary General: ‘the climate time-bomb is ticking’. In it, the IPCC detailed the destruction already caused by climate inaction and warned that greenhouse gas emissions should be decreasing now and must be cut by almost half by 2030, in order to limit global temperature rises to 1.5°C. It’s set to be the last such assessment while the world still has a chance of meeting this target.
Eyes are on governments to step up and reach this goal but the private sector has a huge role to play too. The stirring of hope is that interest and activity around Environmental, Social and Governance is currently booming. One study found that $120 billion was put into sustainable funds in the first half of 2022 alone, while Deloitte notes that, at their current growth rate, ESG-mandated assets “are on track to represent half of all professionally managed assets by 2024.” Such funding will be crucial if countries are to individually and collectively diffuse the climate time-bomb and drastically cut their emissions.
There’s appetite for backing sustainable projects and initiatives – but are the opportunities there? Well, it depends on location. Across Europe, Germany and Spain are leading the way in solar energy (installing 7.9GW and 7.5GW in 2022, respectively) and Spain is aiming to double its share of renewable energy to 74% of power generation by 2030. It’s been noted that realising this goal will rely on permitting processes keeping pace with change – an issue also experienced by alternative energy projects in the UK. It was only this past December that the UK government pledged to relax restrictions on building onshore wind farms in England.
But it’s not just wind farm regulation that hampers the UK’s renewable energy growth. In February, Energy UK released a report warning that the country risks missing out on the investment needed to fund the expansion of clean, domestic power. The investment barriers it highlights include inflation, interest rates, supply chain issues, increased international competition and poorly designed windfall tax, stating that if these are not resolved, the UK could lose out on £62 billion of investment between now and 2030. This would result in a shortfall of 54GW of potential wind and solar capacity – the energy needed to power every home in the UK.
This shortfall risk comes at a time when the UK is already projected to fail its emissions targets. The UK government’s new ‘Powering Up Britain’ net zero plan (written after the High Court ruled last year that its net zero strategy was not detailed enough) reveals that the UK will only achieve 92% of emissions reductions needed to meet its 2030 goal. Added to this, the government is currently refusing to follow the US and EU’s lead and offer green subsidies and tax breaks.
Such resistance is indicative of an old, worn attitude to sustainability and ESG more broadly, that sees ESG efforts as a penalty, rather than an opportunity for profit and growth. If the UK is to keep up with other countries it needs an investment climate that recognises this and legislation that facilities it. Otherwise the UK’s slow uptake, policy barriers and challenging investment environment will mean interest will naturally turn to initiatives in other countries, making it even harder for UK-based opportunities to benefit from funding. This will be a problem for the UK’s economic forecast, as well as its sustainability one.
The UK wants to be a world leader but it risks lagging behind other countries in the race to stop catastrophic climate breakdown. This doesn’t need to be the case. Private investment is ready to push forward climate action and meet emissions targets but it must be supported with policies and mechanisms that foster growth, not block it. The government needs to take this seriously – after all, the bomb is ticking.
