Fears for UK climate commitments as new government takes shape

Truss appointment ‘does not bode well’ for sustainability agenda in the short term, says BNY Mellon Investment Management.

BNY Mellon has warned that Liz Truss’ appointment as Prime Minister “does not bode well in the near term” for the UK’s sustainability agenda, as NGOs call for clarity on key ESG initiatives and new ministerial appointments receive a sceptical response over climate credentials.

Truss, who replaced Boris Johnson as leader of the ruling Conservative Party on Tuesday, has already said she will offer new oil and gas licences in the North Sea and pledged to lift a ban on fracking to address the UK’s energy crisis.

Kristina Church, head of responsible strategy at BNY Mellon Investment Management, said there is a clear risk of losing the momentum built up at COP26 under “an arguably more pro-climate cabinet and leadership”. Truss is not expected to roll back the net-zero target, but the climate agenda may not be as high-profile under the new administration as under previous ones, she added.

Similarly, while it is unlikely that regulatory developments in the sustainable finance space will be affected by the new leadership, Church noted that the industry is still awaiting the long-delayed consultation on technical screening criteria for the UK’s green taxonomy.

At the Green Finance Institute (GFI), executive director Ingrid Holmes struck a more upbeat note, arguing that financial institutions that will continue to act on climate in spite of political developments.

Holmes, who chairs the government’s Green Technical Advisory Group, pointed to the jump in provision of green mortgages as an example of financial institution commitment to green finance. “Finance today requires the application of science to financial decision-making,” she said. “This can and will continue to happen regardless of political developments.”

The government’s focus, Holmes continued, “must be on finding ways to incentivise primary investment into the new business models and technologies needed to deliver our net zero, economic and security interests in the UK”.

By contrast, James Alexander, CEO of UKSIF, said that the industry body’s members urgently required clarity on the future direction of a number of policy initiatives, including transition plans, the green taxonomy and the UK’s planned sustainability disclosure requirements framework.

Meanwhile Isabella Salkeld, senior policy officer at NGO ShareAction, said that “supercharging” responsible investment would play a key role in achieving Truss’s focus on a low-tax, high-growth economy. Salkeld called for planned Solvency II reforms to take climate into account and for the government to recommit to reforming the Financial Reporting Council into ARGA, which would put it on a statutory footing.

‘Every last drop of oil’

Truss has publicly backed the UK’s net-zero pledge and her choice of Chris Skidmore, the chair of a cross-party MP group on the environment, to review the UK’s net-zero policies was welcomed by sustainability advocates. However, some of her ministerial appointments have raised eyebrows.

Concerns about the climate commitments of candidates to be the next prime minister were raised publicly at the start of the contest by environment minister Zac Goldsmith. In July, he said: “Most of the likely contenders are people who, on the whole, couldn’t give a shit about climate and nature.”

The most noteworthy appointments in the cabinet are Kwasi Kwarteng’s promotion from business secretary to Chancellor of the Exchequer, and his replacement at the Department for Business, Energy and Industrial Strategy (BEIS) by Jacob Rees-Mogg.

Kwarteng has previously been a vocal supporter of green energy and the UK’s commitment to net zero. Speaking at RI Europe last year, he praised the role of private finance in expanding the UK’s offshore wind capacity. “The metric of success is how you can attract private capital,” he said. “It’s not simply a question of governments writing taxpayer funded checks.” He has also previously criticised fracking.

However, there have been reports that Kwarteng is “keen” to see natural gas included in the UK’s green taxonomy. Climate was also absent from a readout of his first meeting with finance heads on Wednesday, where he emphasised the need for economic growth and debt reduction.

Of greater concern for climate activists is the appointment of Jacob Rees-Mogg to replace Kwarteng at BEIS.  In 2013, Rees-Mogg penned a column in which he blamed energy prices on “climate alarmism”, and has previously voiced support for fracking. In April, he said that the UK should extract “every last drop” of oil from the North Sea.

It is possible that Rees-Mogg’s influence may be counterbalanced by the appointment of Graham Stuart to the position of minister of state for climate. Stuart, who has previously made favourable comments on the UK’s mandatory TCFD reporting and green bond issuance, will also attend cabinet meetings, an uncommon privilege for ministers of his rank.

The Guardian’s environment correspondent Fiona Harvey said that this move had “prompted speculation” that the new government had yielded to lobbying by green-minded Conservatives who were concerned about Rees-Mogg’s appointment. Sam Hall, director of the Conservative Environment Network, described it as a “fantastic” appointment, and said Stuart was a long-standing champion for climate action.

Pensions question

Further ministerial appointments have been paused following the death of Queen Elizabeth II, as all appointees must be approved by the monarch.

A question mark remains over the fate of pensions minister Guy Opperman. Opperman, who has been active in the ESG space, overseeing the introduction of mandatory TCFD reporting for UK pension schemes and launching a taskforce on social factors and pension scheme voting, is the country’s longest-serving pensions minister but supported Truss’s rival Rishi Sunak in the leadership election.

Claire Jones, head of responsible investment at consultancy LCP, said that further changes in ESG policy should not be the priority of any new minister. Instead, Jones said Opperman’s possible replacement should focus on reviewing the effectiveness of TCFD regulations and guidance on stewardship.

Jones added that it was important to investigate how the reporting burden on pension scheme trustees could be reduced, and that the Department for Work and Pensions should continue to support initiatives that help trustees with ESG implementation, such as the Occupational Pensions Stewardship Council.