The role of investors and governments in the transition to a net zero economy: a conversation with Kwasi Kwarteng MP

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The role of investors and governments in the transition to a net zero economy: a conversation with Kwasi Kwarteng MP

By Paul Simpson, CDP CEO and founding partner of The Investor Agenda

Kwasi Kwarteng was appointed as the UK minister for energy and clean growth in 2019, and recently became Secretary of State for BEIS, the Department for Business, Energy and Industrial Strategy.

The UK will be hosting COP26, the UN’s climate change conference, in November of this year, so speaking with Mr Kwarteng was a great opportunity to hear about the UK government’s ambition and the role that investors and companies can play working with governments.

Mr Kwarteng is emphatic as to what the climate change agenda means for him. “These questions could not be more important, they are fundamental to the kind of society we want to see, to the planet’s future, to how business operates.”

He takes the lead of a department which will publish a set of proposals at the end of 2021 for delivering a green recovery. This follows a series of actions by the UK government dating back to 2019 when the UK was the first major economy to make a legal commitment to net zero by 2050. Last year the UK government also announced that reporting on climate risk in line with TCFD recommendations will become mandatory across the economy by 2025 beginning with large, listed companies in 2021.

Mr Kwarteng explained how his department’s proposals will build upon the Ten Point Plan for a Green Industrial Revolution recently announced by Boris Johnson. This sets out plans to decarbonise the economy and build back better, covering everything from power generation, electric vehicles and home insulation to green finance. It was encouraging to hear more about the plan and the government’s commitment to it. The Investor Agenda called upon governments to publish plans last summer and we will be watching its implementation with interest and support.

I asked Mr Kwarteng what role he saw institutional investors playing alongside governments on the journey to net zero. He believes they are “crucially important in the decisions they make and their actions to reflect and shape policy”, citing the example of a university endowment which had decided to divest its carbon intensive companies.

He spoke of a “virtuous cycle” where the government can create investor interest and confidence and provide a regulatory framework for investment. This is very much the same as the “ambition loop” between governments, investors and companies that we speak of through The Investor Agenda.

He gave the example of offshore wind where the UK government incentivises investment for low-cost operators through contracts for difference (CfDs) which provide revenue stability. The UK government will hold its fourth auction at the end of 2021 and hopes to quadruple offshore wind capacity to 40 gigawatts by 2030. He spoke of a role for capital providers from public markets, private equity and infrastructure investors to enable these projects. Mr Kwarteng acknowledged that heavy industry and domestic heating are two areas which are behind power generation in terms of decarbonisation and where BEIS will be looking to make clear proposals and where a role is envisaged for financial markets facilitating those through green loans and access to credit.

On the question of investor disclosure, Mr Kwarteng was clear that “investors are voting with their wallets, as it were, with their feet. They want to invest in assets with full disclosure. It is being driven from ground up by institutional investors… There is huge appetite for change.” This momentum applies both to asset managers and asset owners.

Finally, Mr Kwarteng highlighted how the race to net zero is a truly global opportunity and endeavour for governments, investors and companies working together. He welcomed the change in approach seen from the new Biden administration in the United States. “Net zero is a red line,” he said and it’s important for us “to export our ideas metaphorically around the world.” It is a key priority for his department, working closely with colleagues in the Foreign Office and the Department for International Trade. And his predecessor, Alok Sharma, is now working full time as President of COP26 and working tirelessly with countries around the world, encouraging them to raise their level of ambition.

It was a pleasure to share ideas in such a frank and free conversation with Mr Kwarteng. The need for investors, governments and companies to collaborate to achieve a net zero economy is central to The Investor Agenda. For each of the seven founding partners, it is a top priority for us to engage with and advocate to policymakers around the world on behalf of the investors we represent what is required to achieve the net zero goal. The UK has made some great progress, but there is clearly more work to do and investors will continue to play a critical role in financing the transition.

 

About The Investor Agenda

The Investor Agenda is a common leadership agenda on climate change that is unifying, comprehensive, and focused on accelerating investor action for a net-zero emissions economy.
The founding partners of The Investor Agenda are seven major groups working with investors: Asia Investor Group on Climate Change, CDP, Ceres, Investor Group on Climate Change, Institutional Investors Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative.