Joy Newton, Associate Director of Sustainability and ESG Finance at Lloyds Bank, and Tara Schmidt, Head of Climate & Sustainability Strategy, Sustainability & ESG Finance, Lloyds Bank, look at how the landscape is changing as UK businesses prepare for Net Zero.
It’s now less than 10,000 days until Net Zero in 2050 – the date by which many nations across the UK have set a legally binding target to bring greenhouse gas emissions to Net Zero.
But the UK is in the grip of a cost-of-living crisis which is reducing consumer spending power and squeezing business margins. The energy crisis, supply chain disruption and falling value of the pound mean input costs are rising. Against a hugely challenging backdrop, businesses are seeking to find a balance between long-term goals and navigating the current challenging socio-economic environment. Climate change is not just about the environment, but social issues too, so the need for a Just Transition is increasingly urgent to build a fairer and more inclusive society.
For instance, the current crisis has highlighted the gaps in the UK’s energy strategy and the need for resilient, clean and affordable fuel that is accessible to all. Energy security is likely to be an important theme for the future, and the UK has ambitious targets in place to bring more Net Zero technologies into the energy supply and demand mix. As these technologies become more mainstream, they could help businesses improve efficiency, reduce their costs and progress toward Net Zero.
We have long been supporters of renewable energy projects, helping to fund the development of Dogger Bank and Hornsea One, the world’s largest offshore wind farm. In the future, we see opportunities to support the hydrogen economy, and invest in the decarbonisation of transport, heat, and the built environment.
Looking out to 2050, unchecked climate change will mean a future of extreme weather events, droughts and floods, disrupting infrastructure and supply chains. Sustainable companies will be more resilient which will in turn strengthen their buyer-group relationships.
Businesses are facing increasing investor pressure to take action on climate risk: right now, more than 60 investor institutions are urging the world’s biggest companies to respond to the global water crisis through the Valuing Water Finance Initiative and improve their water management practices.
We are also seeing much more collaboration on climate action within different sectors, and between industry and academia. Fashion companies are partnering with water charities, food producers with packaging organisations focused on the circular economy, and water companies are using artificial intelligence and advanced digital solutions to reduce leakage. Our industrial heartland is greening itself across the whole value chain and creating new jobs in emerging technologies like hydrogen, carbon capture and storage, while many in the aviation industry have joined up to the World Economic Forum’s Clean Skies for Tomorrow initiative. What’s more, hydrogen and electric airline start-ups are now a feature of the aviation landscape.
Businesses have a vital role to play in getting the UK to Net Zero, and are investing, innovating and collaborating to rise to the challenge. We’ve already seen a huge amount of activity happening across the UK – from top-down regulation to companies’ grassroot initiatives – as the nation blazes a trail on climate action.
In fact, the UK was one of the first countries to mandate that companies assess their climate-related financial resilience. And the government’s Transition Plan Taskforce is developing a gold standard for credible transition plans for UK corporates and financial institutions. From transport to manufacturing, financial services to energy, sectors across the UK economy are building out their own actionable Net Zero plans.
Businesses step up
Since COP26, businesses have sharpened up their climate position. As part of this, they are having to think a lot more carefully about reporting on carbon emissions and their impact. More than 1,300 UK-registered companies – post April 2021 – have been bound by the Task Force on Climate-Related Financial Disclosures (TCFD) rules.
The Glasgow Financial Alliance for Net Zero (GFANZ) has published enhanced guidance on how investors can measure key metrics for investment, lending and underwriting portfolios in terms of temperature alignment. Meanwhile, government emissions calculators now exist to help businesses work out how much carbon they are producing.
Data is power: analytics will enable businesses to see where they are generating the most emissions, including from third parties in their supply chains, and map out the goals they want to aim for. They can then use this information to make better decisions and drive accountability within their business practices.
Aside from the obvious challenges of data-gathering, disclosure, and regulatory compliance, Net Zero also presents huge opportunities for businesses. That’s why we’re delivering sustainable finance to support them, with discounted loans to help companies finance their green transformation. For instance, our £235m sustainability-linked loan to Platform Housing helped the company develop 4,600 new affordable homes, and work to decarbonise its existing portfolio. Visit our Sustainability Voices page to learn more.
The landscape is evolving quickly, and scrutiny isn’t just coming from the top-down disclosure frameworks. Customers are equally reviewing the sustainability credentials of the businesses they buy from. Increasingly, though, we’ve seen companies respond positively to this demand, setting themselves more ambitious targets than ever before as they try to incorporate ESG throughout their business models. It is admirable that many firms are prioritising this given the present backdrop of rising inflation, fuel prices, and ongoing recovery from the pandemic.
It’s important to recognise also that some of the sectors facing the sharpest increases in input costs are also those with the biggest challenges to overcome in the green transition – such as agriculture. As they grapple with the problems the current crisis brings, businesses will need support to maintain momentum on climate action.
How we support businesses on climate action
At Lloyds Bank we work with businesses on a broad range of sustainability and Net Zero initiatives to make sure we’re living up to our promise of being by the side of business – supporting more inclusive and sustainable communities. We do this by helping them invest in more sustainable business practices and technologies. Future-proofing a business is a challenging investment to navigate but our ESG & Sustainable Finance team are well placed to help you finance the transition.
Separate from our Sustainability-Linked Loans, our Clean Growth Financing Initiative offers discounted lending for green purposes, such as investing in low carbon vehicles, improving water efficiency or reducing waste.
We’re committed to £15bn of sustainable financing for corporate and institutional clients by 2024. We’ve already lent £1bn worth of new funding for electric vehicles and we’re also responsible for one in 10 electric vehicles registered on the UK’s roads. We’re also exploring different technologies to identify which to support for the greatest impact as we lean into an energy transition, which will benefit the whole UK.
Times are tough right now, and many companies will be seeking opportunities for cost savings. We’re guiding those companies to look for efficiencies where they can, optimising the assets they already have and being agile in looking for sustainable solutions.
Innovative and forward-thinking UK companies are forging a path on climate action, with large corporates and financial institutions through to SMEs already making great strides. But companies need capital to fund the transition, and we’re here to help make it happen.
You can access discounted lending for green purposes through Lloyds Bank’s Clean Growth Financing Initiative – find out how here.
All lending is subject to status.
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