Labour hopes its pitch to business will get investors to back net zero transition

With a general election in the offing, Labour must clarify its plans for driving the net zero transition – especially as these will entail the private sector providing large amounts of capital

Environmental policy is shaping up to be a major political dividing line in the upcoming general election. After years of political consensus in the UK, the path to net zero is looking uncertain.

This is bad for investment. The Labour party is looking to provide more certainty, and the City stands ready to invest – but more clarity on the direction of travel and the sectors that will form the future of the UK’s economy is needed.

The Labour party’s green prosperity plan – which aims to build towards investing £28bn annually in net zero – is the clearest strategy from a political party to grow the economy through green investment. Coupled with Labour’s green industrial strategy and its plans for a national wealth fund, the framework for catalytic public investment to spur green growth is clear. 

Business agrees. Polling by the Labour climate and environment forum has shown that 78 per cent of businesses believe the party’s green prosperity plan would bring more opportunity than risk to UK business.  

While the City supports Labour’s approach, it now requires detail to form investment strategies. I recently posed a series of questions in my essay for the LCEF. The answers to these questions must be developed in tandem with the City and major players in the key sectors, but the initial detail can begin to be developed.

The national wealth fund should serve a catalytic role, alongside the private sector, to help establish new green markets and ensure the state socialises the risks and the returns. A previous publicly owned investment vehicle, the Green Investment Bank, successfully did this for the offshore wind market, which was developed with funding and the development of crucial policies, such as renewable obligation certificates and the contracts for difference scheme, as well as ongoing engagement with industry.

Labour has identified renewable-ready ports, clean steel and electric vehicle battery gigafactories as the equivalent of offshore wind in 2024, as areas where the national wealth fund can co-invest. Tata’s recent decisions regarding Port Talbot – and the associated job losses – show that government should play a larger role in securing the future of the UK’s steel industry.

Whichever sectors Labour prioritises, it is clear that government needs to step in and identify these key sectors sooner rather than later, and work closely with industry, investors and workers to ensure we mobilise enough capital and secure jobs for the future. 

The creation of the national wealth fund also leads to questions about the UK Infrastructure Bank’s role. Will the NWF work alongside the UKIB or will they merge? Will one offer equity investments and the other focus on cheaper loans and guarantees? 

Could the UKIB’s returns target be replaced instead by, for example, a mobilisation target of every £1 of public investment bringing in £3 of private investment? The answers are not necessarily the important part here – but beginning to provide longer-term certainty and a set mandate that ensures new sectors are catalysed is crucial. 

Alongside increased public investment, Labour must also commit to clarity around emerging green finance regulation. The 2023 green finance strategy sets out a series of important policies and tools, such as the UK green taxonomy, sustainability disclosure requirements and mandatory transition plans. 

The country cannot simply regulate its way to net zero, but these policies, alongside more sector-specific policies, are necessary to mobilise capital by providing transparency and accountability. The users of these tools will also need clarity on the timelines for implementation, so they can understand what disclosures will be required of them. 

Labour has two ongoing reviews that should begin to answer these questions. Shadow economic secretary to the Treasury Tulip Siddiq’s financial services review will speak to Labour’s ambitions to make the UK a hub for green finance, while shadow chief secretary to the Treasury Darren Jones’s recently launched infrastructure review will look at which sectors need catalytic capital.

To achieve the level of investment the country needs requires public and private capital. Business and the City need clarity on the direction of travel, which government can provide with catalytic finance and by implementing delayed regulations. With a general election expected in 2024, these details will be crucial to generating investment into the key future areas of the UK’s economy.

Ryan Jude is cabinet member for climate, ecology and culture at Westminster City Council and a member of the Labour climate and environment forum advisory group.