67. Increasingly, firms are recognising that a low carbon future will be a profitable one. Business affiliation to Race to Zero nearly doubling since September 202197 and at least two thirds of the UK's FTSE100 companies signed up to it.98 But markets are built on expectations, which is particularly important for the net zero transition given it involves structural transformation. It is therefore government's role to reduce policy-induced risk and provide a stable environment for businesses to plan and invest.99
68. Whilst the UK has several advantages to attract investment - it remained second in the European league table for foreign direct investment projects in 2021 - we are part of a global race. The rest of the world is also looking to reduce carbon emissions, transition to net zero, and grow low-carbon economies.
69. A lack of timely investment is diminishing UK comparative advantage. This Review heard that:
"The UK has been investing far less as a fraction of GDP than its competitors over the last decade, a critical reason for its comparatively weak growth performance. The first challenge is therefore to create stronger conditions for private investment". - LSE100
70. To effectively compete the UK must invest more now and provide policy and public funding certainty. This will crowd-in the levels of estimated investment needed from private firms and individuals. The Climate Change Committee (CCC) estimates that additional net zero capital investment needs to grow five-fold from approximately £10 billion/year in 2020 to approximately £50 billion/year in 2030.101 This additional investment will not only produce emissions reductions, but also major financial savings in operating costs.
71. Evidence provided to the review has shown that the Net Zero Strategy and other recent government publications have not provided adequate certainty to business and investors. Clearer plans, focused on individual sectors, set out over the long-term, and communicated clearly to the public, are important to ensure buy-in and providing a stable investment environment. Stakeholders were clear that this is not happening:
"Certainty for business and consumers is critical but as highlighted repeatedly in this Committee's recent reports.... government has too often pursued stop-start strategies which undermine confidence for business, investors and consumers in committing to measures which would reduce carbon emissions, especially when some green alternatives are still significantly more expensive than current options." - Public Accounts Committee, 2nd March 2022102
72. We heard several examples of where a lack of clear long-term planning is undermining business confidence and willingness to invest. For example, at roundtables held by the Review we were told that "[the] risk of start-stop policy also damages investor confidence. Those considering investment in green infrastructure in the UK were held up when the Energy Bill was rumoured to pause."
73. The Review also heard a call for a "UK Net Zero (government) Investment Plan" from thirty UK companies and financial institutions managing approximately £3 trillion in assets.103 They called for a plan that:
• Assessed the total investment needed in natural capital and nature-based solutions
• Set out a proposal for independent tracking of public and private financial flows
• Outlined a strategic financing plan to close the gap between required and actual financial flows and alignment of governance structures with this whole of economy approach.
74. This Review agrees that a current lack of a stable environment to invest in is a barrier which, if addressed, will facilitate further investor confidence. The Review recommends that the Government publish an overarching financing strategy covering how existing and future government spending, policies, and regulation will scale up private finance to deliver the UK's net zero enabled growth and energy security ambitions. This should include setting out the role of UKIB, BBB, BII, and IPA and UKEF in the transition (see below).