LAPFF UK Climate Policy Recommendations Released
The Local Authority Pension Fund Fourm (LAPFF) today has issued a report outlining how UK government can ensure policies support investment in climate action while boosting competitiveness and long-term growth.
The report produced by LAPFF, which represents 87 local authority pension funds and seven pool companies with £350bn AUM, acknowledges the significant progress achieved, including coal use being largely eliminated and the growth in renewable energy. However, the report (“Maximizing impact and competitiveness: LAPFF recommendations for UK climate policy”) states that the next stage of addressing the energy transition will be more challenging.
To deliver investment in the transition and make the UK a green finance centre, the report outlines attributes of good policy from an investor perspective. These include policy being:
– Consistent: a long-term consistent policy framework enables investors and companies to plan ahead, allocate resources to areas in confidence and supports the development of businesses able to use investor capital effectively.
– Financially material: market instruments such as charges for pollution and fiscal incentives need to be sufficient to impact risks and returns meaningfully. As fiduciary investors, asset owners cannot subsidise uneconomic investments but can help overcome market inertia and caution.
– Technologically realistic: meeting the climate change challenge will require new technologies. Policy should support this but should be balanced and neutral in its focus. In particular, it should avoid excess focus on technologies, which have failed to make progress in the past or are speculative and unproven.
– Internationally competitive: there is an international market for capital, and investors and companies will allocate to those markets with the greatest potential.
The report states that there have been past missteps in government policy which have risked investor confidence. The report highlights concerns about reliance on CCS and recommends that support is focused on cost-effective, innovative climate solutions in key industrial sectors such as iron and steel, housing and transport and the general electrification of industry.
The report makes the case for focusing on short-term actions and ensuring a just transition that creates new employment opportunities. It outlines specific actions by sector, including expansion of onshore wind and storage, accelerating action on domestic heating (including through addressing skills shortages), and ensuring expansion of the EV rollout through a focus on affordability.