The UK Sustainability Agenda
Opportunities and Risks for Businesses
12th December 2024
Insights
Table of Contents
- Setting the Scene
- Key Policies and People
- UK Government Plans
- Implications for Businesses
- The Private Equity View
- Contact Us
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In collaboration with Equistone, a mid-market private equity firm with a presence in the UK and Europe, Anthesis explores the evolving UK sustainability agenda, highlighting key opportunities and risks for businesses emerging with a Labour government. Insights shared in this article were adapted from a webinar delivered for Equistone’s UK-based portfolio companies in November 2024.
Setting the Scene
The UK’s sustainability journey has gained significant momentum in recent years, supported by reporting requirements issued by both Government and regulatory bodies, such as the Financial Conduct Authority. These efforts have encouraged UK businesses to incorporate sustainability into their strategies, operations and corporate identity, helping to foster sustainable growth across sectors.
The newly elected Labour Government’s manifesto addressed a wide range of priorities, with climate and sustainability emerging as notable features. The party emphasised clean energy initiatives, green finance and nature conservation, all signalling Labour’s intent to position the UK as a clean energy superpower and a global hub of green finance.
Key Policies and People
For Labour, within the broad spectrum of climate and sustainability, energy is a clear area of near-term focus. Key policies and promises include the development and rollout of Great British Energy, a commitment to Clean Power by 2030, increases in green investment and jobs and, most recently announced at COP29 in early-November, accelerating the country’s net zero ambitions by setting a target of an 81% reduction in emissions by 2035. Collectively, these policies aim to boost renewable energy production, create green jobs, and enhance the UK’s position within the global sustainability and clean energy markets.
Underpinning this ambitious agenda are several key government ministers:
- Ed Miliband, Secretary of State for Energy Security and Net Zero – Milliband’s track record on climate dates back to 2008, when he was the Secretary of State for Energy and Climate Change. In this role, he oversaw the introduction of the world-leading Climate Change Act 2008, making the UK the first country in the world to put climate targets into law.
- Sarah Jones, Minister of State at both the Department for Energy Security and Net Zero, and the Department for Business and Trade.
These ministers are supported by other key individuals, including Chris Stark, Head of Mission Control for Clean Power and former Chief Executive of the UK’s Climate Change Committee (CCC); his successor Emma Pinchbeck, the new Chief Executive of the CCC; Jürgen Maier, former Chief Executive of Siemens UK and now the Great British Energy Chairman; and Rachel Kyte, the UK’s Special Representative for Climate. Alongside those focused on climate and energy is Ruth Davis, who has been appointed the UK’s first Special Representative for Nature: evidence that the UK recognises the interconnected relationship between nature and climate.
UK Government Plans for 2025 and Beyond
Looking ahead to 2025, the government has a clear set of priorities with goals to address emissions, support climate finance, and drive domestic and international sustainability efforts.
In the near term, the Nationally Determined Contribution (NDC) of an 81% reduction by 2035 contributes to the ambition of a zero-carbon electricity system by 2030, implemented with support from a new Carbon Budget Delivery Plan. On a finance front, the government plans to expand funding to support nature-based solutions via the Nature for Climate Fund and provide £11.6 billion in climate finance to developing countries to address climate adaptation and mitigation needs from April 2026.
Although specific details of pledges and policies are still emerging, the government is likely to face pushback from sectors affected by planned changes, such as the introduction of the UK’s Carbon Border Adjustment Mechanism (CBAM) in 2027, and uncertainty around the economic impacts of a rapid green transition. Fortunately, COP29 fell at a beneficial time to aid global cooperation and strengthen certain international partnerships, but the UK will need to be sensitive to macroeconomic volatility and the balance of stances between the EU and the US given the recent outcome of the presidential election.
Implications for Businesses
With an updated policy agenda emphasising decarbonisation, renewable energy investment, and sustainable finance, the UK is entering a period of significant transformation, offering businesses opportunities to drive growth, enhance competitiveness, and future-proof operations. By proactively addressing sustainability, companies can position themselves to benefit from emerging markets, cost efficiencies, and strengthening their appeal to investors, consumers, and other key stakeholders.
Regulatory developments will play a key role in shaping this landscape. The introduction of measures such as the UK’s CBAM and the anticipated Industrial Strategy in March 2025 are expected to align the UK with international markets, incentivising emissions reductions across supply chains and attracting investment in green technologies.
The transition to net zero will create distinct challenges and opportunities across sectors. Increased scrutiny on supply chains and operations will require businesses to better understand their carbon footprints and address hotspots to comply with new ethical and environmental standards. Plans for greener industry signal substantial changes for high-emitting sectors, particularly manufacturing and energy. These sectors face heightened risks, including taxes and the need for capital-intensive investments in emissions-reducing technologies.
While the shift to clean energy and more sustainable operational practices requires upfront investment, it also presents avenues for long-term value creation. Businesses that invest in decarbonisation, emissions-reducing technologies, and efficiency improvements can achieve cost savings, better mitigate risks, and align with emerging consumer preferences. Technical solutions to improve efficiency, measure impact, and support compliance could see an uptick in demand. There’s also an opportunity to leverage government-backed programmes, such as the National Wealth Fund and nature-focused funding streams, to offset costs and foster innovation.
With the government seeking to establish the UK as a hub for green finance, the sector has significant opportunities to drive economic growth and create jobs through sustainable investment products and climate-focused lending. For private equity firms and their portfolio companies, aligning with net zero priorities can deliver operational benefits and long-term growth potential. Efficiency gains, supply chain resilience, and enhanced ESG credentials contribute directly to value creation, driving competitive advantage in an evolving marketplace.
Changing consumer expectations, particularly regarding supply chain transparency and circular economy practices, also offer opportunities for businesses to meet market and regulatory pressures whilst enhancing brand reputation. Though cost-of-living pressures may moderate the pace of change in some areas, sustainability remains a differentiator for companies looking to secure loyalty and growth.
By aligning early with climate priorities, fostering innovation, and investing in decarbonisation, companies can unlock growth opportunities, mitigate risks, secure long-term resilience, and play a leading role in building a more sustainable economy.
The Private Equity View: Insights from Equistone’s UK ESG Manager Jessica Clavette
As of July 2024, only 24–32% of the emissions reductions needed to reach the UK’s climate targets were covered by credible policy (Climate Action Tracker and CCC, 2024). Clear, consistent, and proactive government communication about upcoming policy is vital for private equity to help businesses to adapt effectively. Industry collaboration in policy development is key to achieving balanced priorities and clearer direction, building momentum for meaningful change.
For Equistone, engaging portfolio companies with input from external experts is instrumental in fostering the ongoing learning and knowledge-sharing required in this rapidly evolving area. We create regular, targeted opportunities for portfolio engagement that address businesses’ ESG performance at all levels, from fundamental compliance to strategic initiatives that unlock value. This approach empowers our companies to progress from reactive to more proactive stances.
Insights from Anthesis have been pivotal in helping our businesses navigate the implications of shifting political and economic conditions on climate and sustainability policy. This includes a better understanding of developments in decarbonisation and a sustained focus on climate priorities. Attendees of the webinar valued discussions on topics such as aligning with EU policy (given Labour’s emphasis on strengthening ties), the role that the UK could play as the US likely pivots its attention elsewhere in coming years, and the varied impacts across sectors.
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