Bold thinking needed for business to accelerate capital’s progress to net zero

Bold thinking needed for business to accelerate capital’s progress to net zero

A report by London First, the capital’s leading business campaign group, and our sustainability knowledge partner McKinsey and Company, identifies seven ideas for how businesses can seize the initiative on green growth opportunities and play a leading role in de-carbonising the capital to meet its net zero goals.

Read the report

The report – Green, Growing, and Global: A de-carbonising capital for a competitive UK – is underpinned by quantitative analysis and engagement with London’s senior business leaders. The opportunities identified cover four key sectors – buildings, aviation, financial services, and professional services. Each idea explores how the capital can chart a tangible path to a stronger, cleaner UK.

In the wake of the pandemic, climate change has come into sharper focus, with many of the world’s governments having committed to a green recovery, launching once-in-a-generation plans that prioritise green investment. The war in Ukraine, and its impact on global energy markets and rising fuel prices, has further increased the pressure to act now to create resilient and affordable recovery plans.

These ideas are intended to spark a debate about how key sectors can harness opportunities to tackle climate change, while providing high-quality jobs. While they are not a set of detailed plans, these ideas cover what could be needed, from how to kickstart a retrofitting revolution, to London becoming the first carbon-negative aviation hub in the world.

London’s emissions have fallen 40% between 2000 and 2017, and the Mayor aims to accelerate this by setting an ambitious target for London to become a net-zero carbon city by 2030. However, London still represents 10% of the UK’s emissions, so there is more to be done, as reflected in the UN Climate Change Conference (COP26) discussions and the latest Intergovernmental Panel on Climate Change report.

Commenting, Ioanna Mytilinaiou, Programme Director for Sustainability at London First, said:

“Businesses in the capital are already playing a significant role in responding to the climate challenge, by developing individual action plans, but our collective ambitions should be far higher. The race to net zero should not be just viewed through an environmental lens, but an economic one. Seizing the green growth opportunity in London will contribute to the capital’s decarbonisation and create jobs, while helping retain London’s status as a global business hub. The climate and economic impact of the ideas explored within the report could be substantial as they could deliver sustainable, social and economic benefits in London and beyond. The time for action and implementation is now.”

These seven ideas were chosen based on four factors: their material decarbonisation impact; the size of economic opportunity each could deliver; their positive knock-on effects for the whole UK; and those with near-term implementations that London’s businesses can drive. They are:

1. What if London targeted large buildings with high operational emissions to kick-start a retrofitting revolution?

Decarbonisation of buildings is far behind targets, and 74% of London’s housing stock runs on mains gas that needs to be replaced. At current rates of retrofitting, 60% of houses will still be below Energy Performance Certificate (EPC) level C by 2030. London could help by creating an emissions trading scheme for large buildings, and by offering commercial emitters with high costs an option to pay for exceeding levels, a fund could be made to support retrofitting in social housing. Such a scheme could save an additional 2Mt CO2 a year by 2030 while creating circa 10,000 additional retrofitting jobs. Designed correctly, it could also add social value by supporting households in fuel poverty.

2. What if London channelled accelerating interest in prime new builds into kick-starting the low carbon building materials industry?

As operational emissions in buildings are being reduced, attention has shifted towards embodied carbon. Leveraging London’s thriving prime residential market, which suggests a potentially higher ability to pay, decarbonisation of the construction industry could be accelerated. By a target system for green or zero-carbon materials on prime office builds, a domestic green material industry could be launched helping take an additional 1Mt of CO2 off London’s emissions, and helps scale these solutions to the rest of the new build pipeline.

3. What if London as a city achieved a sustainable aviation fuel (SAF) target so ambitious it was comparable to the best EU countries?

The UK has targets for SAF, but London’s airports have an ambition to go further. Government support to scale up production is undoubtedly the top priority in the short term, but more could be done through initiatives like a London SAF Buyers’ Alliance. A surcharge could add 2 – 6% to the price of a transatlantic business class flight and if fuel is sourced domestically, it could potentially kick-start an SAF economy across the UK with tens of thousands of jobs.

4. What if London’s airports sowed the seeds for high-quality carbon removals and pledged to become the first carbon-negative aviation hub in the world?

London’s airports could lead the world with targets and standards for high-quality carbon removals, going so far as to pledge to neutralise all of London’s historical aviation emissions. The UK is already a global leader in high-quality carbon removals, and if the aviation sector removes 20 – 25Mt of CO2 per year by 2050 – as suggested by the UK’s Climate Change Committee – and carries on growing removals thereafter the UK could make huge strides to eradicating all historical carbon impacts of its flights.

5. What if London pushed forward the momentum in green financial services to fund the world’s green CAPEX needs and transition to a green asset book?

The UK’s finance industry has made progress in committing to a more sustainable future, but more near-term action is needed which could help connect capital to decarbonisation investment needs. Sustainable funds are now outperforming conventional funds however, London could do more to capitalise on the opportunity. If the UK’s 10 largest asset managers and 15 biggest banks achieved a 25% emission reduction target for their portfolios by 2025, around 200Mt of annual CO2 emissions will have been addressed, £1.5 trillion of additional funding could be provided to the net zero transition and 70%-80% of jobs at stake could be safeguarded.

6. What if London became a leading centre for voluntary carbon trading?

While the priority for businesses must be to reduce their own emissions, voluntary carbon markets could support abatement by funding additional projects that offer climate benefits and driving carbon removals. According to the IPCC, the world may need up to 10Gt of carbon removals by 2050 to address residual emissions and manage overshoots of the carbon budget. The voluntary carbon credit market has been growing at an annual average rate of around 30 – 45%. Since 2017. If London was to establish itself as a leading voluntary carbon trading hub, it could trade approximately $1 – 3bn in carbon credits in 2030, encompassing the UK domestic demand as well as a share of Europe’s.

7. What if London’s professional service firms collectively grew their proposition for ESG talent as a city?

Employees are attracted to firms that deliver on ESG promises. London’s firms could form a coalition that builds the infrastructure required for London to become a leader in ESG professional services. A coalition could allow firms to drive initiatives, such as standardized approaches to measuring climate impact with their clients, red lines on organisations without targets that should not be supported, or to agree collective commitments to flexible working norms. Done with the right focus, this could collectively orchestrate an improved experience for ESG talent in London.