Business opportunities in sustainable finance
Alongside the policy discussions taking place at COP26, a key question remains: who pays for the transition to net zero carbon emissions?
Whether the climate targets on the agenda at COP26 are met or not will ultimately come down to the allocation of scarce financial resources. The Climate Change Committee (CCC) estimates the total investment cost for the UK economy to reach net zero carbon emissions by 2050 at £1.4tn. The government will contribute part of this, but the majority will come from the private sector. This level of spending would not be unprecedented, the government spend totalled £370bn for policies linked to COVID-19 – 26% of the total public and private investment needed over the next 30 years to reach net zero.
A focus on the opportunities
The substantial changes to the economy present attractive commercial opportunities for businesses. This is contrary to the misconception that climate action has a trade-off with economic development. Growth opportunities are diverse and far-reaching as future supply chains will look very different from today. For example, a 2020 study from the Grantham Institute showed technological trends in the automotive sector alone present growth opportunities in areas such as raw material production, manufacturing, and even software services. The S-curve (or adoption curve) means that the transition within markets can experience non-linear, exponential growth. As a result, innovators and early adopters will benefit disproportionately from the shift.
The growth will be geographically diverse, and was evidenced by a 2021 BEIS Research Paper which demonstrated the positive economic impacts through decarbonisation in the North East of the UK. These opportunities also extend beyond the UK as new export markets are developed to solve this global problem.
Furthermore, the growth of sustainable funds and the rapid growth of the green bond market means that businesses investing and innovating in the transition will have access to a larger pool of capital. This is boosted by the government’s intentions to position the UK as a leader in sustainable finance. As set out in CBI’s sustainable finance position paper, businesses which act early will unlock more of these opportunities.
What next for policy?
The government should play a market making role in these early markets and catalyse investment from the private sector. The government is also currently falling short in climate finance, despite the overlap it has with the pandemic recovery, the Levelling Up agenda, and job creation. For example, CBI analysis suggests that spending in areas such as electric vehicles and energy efficiency could create 250,000 net new jobs by 2030, highlighting the economic boost across the value chain.
The CBI will continue to work with the government on its sustainable finance agenda. CBI Economics, the CBI’s consultancy division, is well placed to undertake bespoke economic analysis on topics of the net zero transition, commercial opportunities for a low carbon economy, and policy evaluation for your sector. To find out more, please contact us at CBIeconomics@cbi.org.uk.