UK climate strategy: Twice unlawful

In a landmark decision, the UK High Court has once again found the government’s plan to achieve net zero emissions by 2050 inadequate, ruling that it fails to meet legal standards. This judgement reaffirms concerns about the government’s reliance on undeveloped technologies and unclear policies to meet its climate targets.

This ruling marks the second time the government’s approach has been legally challenged. The initial complaint was led by environmental groups Friends of the Earth, ClientEarth, and Good Law Project following the release of the government’s Net Zero Strategy in October 2021. They argued that the strategy lacked detailed information on how the proposed policies would contribute to the national carbon budgets.

In response to these legal challenges, the High Court in 2022 mandated the government to outline more concrete plans and timelines. This resulted in the publication of the Carbon Budget Delivery Plan in March 2023, which aimed to specify how various sectors would contribute to the emissions reduction targets.

However, dissatisfaction continued as the updated plan was still seen as overly optimistic about policy delivery and effectiveness. In June 2023, the same groups filed a new lawsuit, leading to the recent ruling criticising the government’s optimistic assumptions about technology and policy efficacy.

Justice Sheldon, in his judgement, pointed out that the government’s decisions were based on a “mistaken understanding of the true factual position,” indicating a significant gap between the strategy’s theoretical basis and practical feasibility.

Sam Hunter Jones, a senior lawyer at ClientEarth, expressed that the repeated judicial criticisms highlight a critical need for the government to reevaluate and strengthen its approach to climate policy:

“The courts have now told the UK government not once, but twice, that its climate strategy is not fit for purpose. This time the court made it emphatically clear: the government cannot just cross its fingers and hope for high-risk technologies and uncertain policies to plug the huge gaps in its plans.”

The court has now demanded another revised strategy within 12 months, emphasising the urgency and importance of realistic and effective climate action planning.

Implications for asset managers

For asset managers, this ruling underscores the importance of environmental, social, and governance (ESG) considerations in investment strategies. The government’s shifting climate policy landscape suggests that asset managers should remain vigilant and adaptable to regulatory changes that could impact investment valuations and opportunities.

This situation also presents an opportunity for asset managers to lead in green finance by investing in companies that contribute to sustainable solutions and those aligned with more robust and realistic climate policies. Through engagement, asset managers can play a crucial role in promoting corporate responsibility and encouraging companies to adopt forward-thinking practices that mitigate legal and environmental risks.

Additional environmental concerns: Water quality management

Beyond climate issues, the UK government has faced criticism this week for its handling of water quality. The Office for Environmental Protection (OEP) has recently highlighted severe shortcomings in implementing the Water Framework Directive (WFD) regulations. Despite ambitions to significantly improve the status of England’s water bodies by 2027, current efforts are lagging far behind targets, with projections indicating that only 21% of waters might meet the required standards.

This failing stems from ineffective law enforcement and a lack of proactive measures at local levels, as noted by OEP chair Dame Glenys Stacy. She emphasises the need for intensified and targeted actions to meet the looming deadlines.

For asset managers, this represents another layer of risk management and investment consideration. The government’s environmental strategies, both in climate and water management, suggest a broader context of regulatory and compliance risks that could influence market stability and investment returns.

Both the climate and water quality rulings highlight the government’s struggles with environmental governance. For asset managers, these developments should prompt a reevaluation of risk exposures and investment strategies, ensuring alignment with financial returns and long-term sustainability and compliance landscapes.

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