Monday, July 15, 2024

Infrastructure Spotlight – Autumn 2023 | Travers Smith

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An investor-driven, market-based route to Net Zero?

The UK Government may be hoping that “greening the financial system” (see section 5 and section 6) will in practice be more effective at driving progress towards Net Zero than measures such as banning gas boilers or petrol cars.   Indeed, requirements on investors to be more transparent about their environmental impact may well lead those businesses to put pressure on their investee companies and suppliers to help them demonstrate their green credentials.  However, to be effective, green finance initiatives should ideally dovetail with operational regulatory requirements to create multiple incentives to move towards Net Zero.  So, for example, the Zero Emission Vehicle mandate will help ensure a stable regulatory framework for the development of charging infrastructure, and the UK’s Green Taxonomy could ensure that investors with a sustainable mandate are encouraged to raise funds for it. 

There is much to be said for policies that encourage investors to prioritise greener investments and the market is often a better judge than Government of what will work in practice.  However, the danger remains that by appearing to row back on operational policy and regulation (i.e. concerning infrastructure, homes and cars), the UK risks falling behind other countries which are pulling on both the financial and operational policy levers.  That said, there appears to be some recognition of these concerns in the Autumn statement, with the announcement of measures designed to remove barriers to investment (via planning reform and regulatory developments) and encourage investment (via a new investment exemption for the Electricity Generator Levy) – see section 3.

For a more in-depth look at the issues discussed here, see our detailed briefing.

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