Climate change & local government

DECEMBER 2021 | ACASTA RISK

Crossing the divide

Introduction

Environmental, Social and Governance (ESG) as an investment theme has grown in stature. The corporate world is responding to regulatory and investor pressure to take a broader range of stakeholders into account when setting business plans and strategy for the good of the planet. Nonetheless, climate change is an issue which transcends business, and national and sub-national bodies play a key role in bringing together people and communities to take positive climate action.

Within the UK, local government is tasked with the responsibility of providing the communities they serve with services such as health, education and secure environments in which to live and thrive, and so play a unique role in encompassing the ethos of environmental, social and governance considerations when acting out their duties; and these considerations are transforming local authority delivery models as we move to a lower carbon world.

Bristol was the first council to declare a climate emergency as recently as 2018, and since then there has been a flurry of declarations, with over three hundred councils now having made a statement on climate. This duty has to be discharged with the backdrop of stretched public financing, extenuated by the pandemic.

The built environment challenge

Operationally, the built environment accounts for a quarter of UK carbon emissions, and councils have a big role to play as owners and operators of large public utility buildings via retrofit projects, and as planning authorities for new build housing developments. There clearly is a need for net zero buildings, and as businesses look to extend their planning horizon to beyond traditional three-year business planning cycles, housing life cycle emissions will have to take precedence over short term upfront considerations, particularly with regards to emissions and cost.

Potential options includes installation and utilisation of solar panels, and the replacement of gas boilers with heat pumps, both ground source, and for buildings in dense urban areas, air-source. Large infrastructure projects looking at integrated geothermal resources linked to large industrial offtakes, or even regional grid heating networks, will also command attention. The UK government released its ‘Heat and Building Strategy’ in October of this year, which set out the need to reduce the heat energy requirements of buildings in the UK, as well as to provide them with new low carbon heating systems.

Ensuring a just transition

It could be argued that the social impacts of challenges posed by climate change haven’t been discussed with the same enthusiasm as climate related impacts yet ensuring that the transition to a lower carbon economy is a just transition is crucial to maintaining public support.

An important consideration for public sector bodies is the cost of the solutions being considered, again both from an upfront and lifecycle perspective, especially for people affected by fuel poverty; the need for a just transition whilst we decarbonise is a critical consideration. With this in mind, immediately deployable insulation solutions must be considered, especially given the embedded existing building stock, much of which is amongst the least heat efficient in Europe.

An example of a local community initiative looking to ensure a just transition as the economy decarbonises is the ‘Green New Deal for Gatwick’, which seeks to address the crisis in employment at Gatwick airport and in the surrounding areas, and to highlight the potential for workers to transition to work in the green economy, finding that some 16,000 jobs could be created in a geographical region covered by seven councils in Sussex within a short period of time.

The public sector and financial markets

Public authorities continue to operate under strained finances, and this is where there is convergence in local government funding and private financing. Mirroring the rise in sustainability linked loans, Bloomberg reported this month that the ‘UK Municipal Bonds Agency’, which was set up in 2014 to help U.K. councils access capital markets, is looking to sell its first ethical bonds on behalf of local governments in 2022, tapping into a booming market for sustainable linked financing driving down borrowing costs.

There is precedent in this blended finance model, with Transport for London raising green bonds to the tune of GBP 400m in 2015, which were oversubscribed by some 50%, just showing the demand for this type of offering. More recently, the Isle of Man, which has committed to reaching net zero by 2050 and 75% renewable energy sources for electricity by 2035, also raised GBP 400m this year to finance a range of projects including clean transportation and energy efficiency under a sustainable finance framework.

Conclusion

The challenge of climate change will only be addressed by public and private sector organisations working in unison, and we are starting to see initiatives put in place that cross the divide, initiatives that are starting to have a real impact on how climate change risk is managed and mitigated, to the betterment of all.

Acasta continues to engage with a range of bodies across local government and the corporate sector, spreading learning and working towards a position where climate risk, mitigation and adaptation strategies work to the benefit of all.

For more information please contact:

Mohammed Chunara, Director, Climate Risk, Acasta Risk

+44 (0)20 3983 9263 or by email: [email protected]

Alba Fuentes Delpon, Manager, Climate Risk, Acasta Risk

+44 (0)20 3983 9263 or by email: [email protected]

© 2021 Acasta Risk


Back to home page