Amid a flurry of announcements from the new Government in recent weeks, you could be forgiven for missing plans from the Chancellor Rachel Reeves to increase returns on investments made by the £360bn Local Government Pension Scheme (LGPS).
Her proposals for doing so centre on greater collaboration: encouraging the 87 funds which operate under the LGPS umbrella to collectively invest more efficiently in innovative companies and green projects which support the Government’s sustainable growth mission.
The old adage that there is power in numbers is as true in the field of investing as it is in the world of sustainability. That’s why we at BusinessLDN have worked with our members Arup on a blueprint for a business-led UK Collective Offsetting Fund, which brings these two disciplines together as we race to meet ambitious net zero targets.
This new vehicle would consolidate the roughly £150m that UK companies currently spend on carbon credits annually – a figure that is likely to increase significantly in coming years – in support of reduction, removal and avoidance of carbon emissions, creating a single efficient vehicle that can invest in offsets at scale.
Crucially, with less than 1% of that £150m spend currently directed towards rewilding, retrofitting, direct air capture and wider offsetting initiatives here in the UK, the fund would exclusively focus on domestic projects, thereby supporting local job creation and growth.
With accusations of greenwashing levelled at much international offsetting activity in recent years, the fund would need to be subject to rigorous and consistent scrutiny to ensure its integrity and success. We envisage that it could be overseen by the Financial Conduct Authority as well as an independent third party with deep expertise in offsetting.
Likewise, schemes put forward for the fund would need to meet thorough criteria to contribute, including by demonstrating alignment with the 10 Core Carbon Principles developed by the Integrity Council for the Voluntary Carbon Market.
Over the longer-term, this business-led fund could channel collective investments from a wider range of organisations and public institutions, helping it to underpin an ambitious, transparent pipeline of offsetting activity all over the country.
A key opportunity in this regard sits at the local authority level, where the Chancellor’s collaborative philosophy should be extended beyond reforms to the LGPS.
Here in the capital, the Mayor’s London Plan – which governs how the city’s built environment should be delivered and managed – often requires developers to contribute to council carbon offsetting funds as part of project delivery. These funds must then invest in local areas where contributions are collected.
As things stand, lack of resource and suitable local projects mean only around £30m of the £240m owed to London councils for offsetting purposes had been spent in relevant areas as of 2022. In the near-term, extending the spirit of collaboration to these investments would mean more efficient support for local offsetting projects, driven by shared expertise and a joined-up approach to delivery.
In years to come, these new collective vehicles could increasingly engage with one another, resulting in shared efforts to tackle climate change greater than the sum of their parts. This cross-sector collaboration is critical to mobilise green investment, create new jobs and drive sustainable growth. Together, we can use the power of investing in numbers to reach net zero.
This article originally appeared in BusinessGreen.