The world remains off track when it comes to decarbonising the global economy, as evidenced by recent stock-take reports and emission plan assessments, and headlines continue to sound the alarm regarding the sustainability commitments of governments and investors.
But on the ground at the UKSIF Spring Conference in Edinburgh, earlier this month, sentiment was decidedly more positive on the prospects of a net-zero transition, if supported by enabling policy, stakeholder collaboration and an integrated approach to climate and nature risks.
Given that an estimated US$3.5 trillion in capital investment is needed annually between now and 2050 to achieve decarbonisation, such sentiment is welcome, if it translates into momentum and ambition.
This Insight piece presents some of the takeaways from this event for investors and policymakers and explores whether the approach taken by countries like Scotland can serve as a blueprint for catalysing broader action.
De-risking private investment
The recent UKSIF Spring conference in Edinburgh highlighted that Scotland is in the process of creating a sustainable finance policy ecosystem, which could serve as a replicable model for other countries looking to decarbonise their economies and seize the opportunities that sustainable investment offers.
The Scottish government has aligned with partners such as the City of London Corporation, renewing a formal cooperation agreement last year. In addition, closer cooperation with the UK government, whose Plan for Growth includes sustainable finance, has also been pivotal to supporting that environment, Deputy First Minister Kate Forbes signalled in her keynote speech.
This kind of collaboration demonstrates to institutional investors looking to invest in decarbonisation-linked opportunities that such investment is well supported by public policy in the UK, providing an enabling environment for private capital.
Earlier this year, for example, the Scottish government announced a package of agriculture-focused measures and funding, including:
a £14 million Future Farming Investment Scheme to improve efficiency or promote nature- and climate-friendly farming practices
reopening the Agri-Environment and Climate Scheme to support farmers in restoring hedgerows, creating ponds, converting to organic farming and providing maintenance assistance; and
a commitment to delivering ultra-high frequency electronic identification for cows to improve traceability.
While this sends a positive signal to investors, the announcement was also criticised by organisations such as the Nature Friendly Farming Network and Scottish Wildlife Fund for not being ambitious enough on nature and climate, highlighting that an enabling environment for investors also needs to align with wider stakeholder expectations.
Supporting a just transition
Indeed, investors and policymakers understand that decarbonising the UK economy will only be sustainable in the long term if the transition is just - meaning it is fair, inclusive, and equitable.
Based on this understanding, the Scottish government commissioned and published research into the social and economic impacts of “green land investment” in rural Scotland in 2023.
The impacts of these investments, targeting nature restoration, regenerative land management or sequestering carbon emissions, were mixed.
While they saw increased community engagement with estate activities and investor-owner support for community initiatives, plus increased tourism-related activity and employment, these investments also led to a loss of (traditional rural) employment, local services and community decision-making, among others.
Importantly, the research also highlighted that investor-owner support for education and training opportunities, for example in peatland restoration and forestry, was “crucial” to a just transition.
This integrated approach that places local communities at the forefront not only benefits local stakeholders, but ensures the resilience of underlying assets and supports long-term value, particularly for real assets that are embedded in communities, such as farmland or forests.
Protecting ocean health to drive decarbonisation
Investors globally recognise that climate and nature risks are interlinked and cannot be addressed in siloes, a view that was also reflected at a UKSIF Spring Conference panel discussion on the role that oceans play in supporting decarbonisation.
Over half the world’s GDP is reliant on nature’s ecosystem services, estimated to be worth more than US$58trn annually, and these include services provided by oceans, such as carbon and heat absorption.
Oceans absorb roughly 25% of all carbon dioxide emissions and capture 90% of the excess heat generated by these emissions, according to the UN, but these services are finite – the more they absorb, the less they can continue doing so.
Oceans also face numerous critical challenges as a result of climate change, many of which are linked to rising water temperatures, from acidification and sea-level rises to biodiversity loss.
These challenges are already impacting coastal communities that depend on fish for food and jobs, while declining stocks, quota caps and price volatility threaten the operations and profitability of aquaculture companies, as highlighted in FAIRR’s research.
Charting the course to net-zero
As the UKSIF Spring Conference highlighted, there are signs of concrete progress when it comes to preparing for the net-zero transition, with countries like Scotland providing a potential blueprint for others to follow.
Decarbonisation can provide investment opportunities that deliver on climate and nature goals as well as generating long-term sustainable value for investors, but this requires coordinated local, national and global action from stakeholders, ranging from policymakers to financial market participants, and local communities.
Moving from commitments to execution is critical to ensure the transition succeeds, and with global policy milestones such as COP30 looming, climate plans need to be implemented at pace.
FAIRR insights are written by FAIRR team members and occasionally co-authored with guest contributors. The authors write in their individual capacity and do not necessarily represent the FAIRR view.
