Following the launch of a new PwC and Global Infrastructure Investor Association (GIIA) report on financing net-zero, GIIA’s John Kavanagh and Joe Robinson outline why clear policy and regulatory direction is needed to enable this investment.
Achieving net-zero by 2050 will require substantial levels of investment to upgrade and future-proof the UK’s physical and digital infrastructure. Research published last week by PwC with GIIA, ‘Unlocking capital for Net Zero infrastructure’ finds that £400bn of investment over the next ten years is needed in the UK to ensure a credible pathway to full decarbonisation. This is around double the level of capital investment being made today.
Although the challenge is enormous, the report finds that the UK appears strongly placed to attract the investment required to decarbonise not just its energy sources, but all sectors of the economy, including buildings and transport. The UK’s success in sectors such as offshore wind over recent years, has much to do with the establishment of clear regulatory, policy and financing structures which have helped to create long-term certainty for private investors who have the capital to deploy.
Looking ahead to the looming net-zero target, it is therefore critical that the government sets out the same level of clarity, building on these successes of public-private collaboration. Investors will require a sector-by-sector roadmap and strategic regulatory framework from which private capital can be enabled, whilst at the same time striking the right balance between consumer interests today and in the future. This chimes with ICE’s calls for a Net-Zero Infrastructure Plan, which would put in place the overarching policy framework required for transitioning infrastructure to net-zero.
While the UK has so far led the way in being the first major economy to legislate for net-zero, our report found that in the UK, only around 50% of net-zero asset classes are currently able to access the low cost patient capital that they will need. This is because these technologies are currently too immature and present business model or policy risks that make financing unviable. So there is also a role for government and arm’s length agencies, to step in to address these market failures, to support emerging technologies to scale and to subsequently attract the levels of long-term investment needed for the UK to compete on a global scale.
It is also fundamentally important that policy and regulation seeks to balance the interests of current and future generations in ensuring that investment into climate-friendly and resilient infrastructure can be delivered at a cost that avoids future consumers, or indeed taxpayers, being disproportionately burdened.
Pensions and principles
Infrastructure investment also affects UK pension savers, with over 8.5m pension pots invested in UK infrastructure assets. There is increasing pressure from these pension savers for their savings to be directed towards responsible and sustainable investments. GIIA’s recent Global Infrastructure Index, published in partnership with Ipsos MORI, found that renewable energy, rail and flood defences topped the list of infrastructure sectors that respondents saw as a priority for investment.
Next steps for infrastructure investment
As the world pays serious attention to the Net-Zero agenda and governments, investors and international organisations prepare for COP26 in Glasgow next year, the UK must ensure that it leads by example and presents a clear and detailed decarbonisation strategy that enables the level of investment required to deliver on its 2050 commitment. ICE has called for a similar approach in its 2020 State of the Nation report on net-zero.
Now is the time for a clear roadmap to unleash the infrastructure investment we need in the UK. We cannot wait for a multi-year spending review to see this delivered. The country needs us to get on with it now.