The Local Authority Pension Fund Forum (LAPFF) has published a report outlining its recommendations for UK climate policy, warning that the next stage of addressing the energy transition will be more challenging.

The report acknowledged the significant progress already achieved, including the use of coal being largely eliminated and the growth of renewable energy.

However, it recommended ways the UK government could ensure policies support investment in climate action while enhancing competitiveness and long-term growth.

The report outlined attributes of good policy from an investor perspective to deliver investment in the transition and make the UK a green finance centre, which included the policy being consistent, financially material, technologically realistic and internationally competitive.

In the report, the LAPFF said that, to be consistent, a long-term policy framework would enable investors and companies to plan, allocate resources to areas in confidence and support the development of businesses able to use investor capital effectively.

It also highlighted that policy should be financially material, with market instruments such as charges for pollution and fiscal incentives needing to be sufficient to impact risks and returns meaningfully.

The LAPFF noted that, as fiduciary investors, asset owners can not subsidise uneconomic investments but can help overcome market inertia and caution.

In addition to this, the report recommended that policy should be technologically realistic and said that meeting the climate change challenge would require new technologies.

It argued that policy should support this but have a balanced and neutral focus, particularly avoiding excess focus on technologies that failed to make progress in the past or were speculative and unproven.

The forum also encouraged policy to be internationally competitive, stating that there was an international capital market, and investors and companies will allocate to those markets with the greatest potential.

The report noted that there have been past missteps in government policy, which have risked investor confidence.

Given this, it highlighted concerns about reliance on carbon capture and storage, recommending that support be focused on cost-effective, innovative climate solutions in key industrial sectors such as iron and steel, housing and transport and the general electrification of industry.

Furthermore, the report made the case for focusing on short-term actions and ensuring a just transition that creates new employment opportunities.

It outlined specific actions by sector, including expansion of onshore wind and storage, accelerating action on domestic heating (including through addressing skills shortages), and ensuring expansion of the electric vehicle rollout through a focus on affordability.

Commenting on the report, LAPFF chair, Doug McMurdo, said the LAPFF has engaged with many leading companies on their climate plans.

However, McMurdo suggested that if investors were to fully play their role in reducing the environmental, social and economic risks that climate change poses, then supportive government policies are needed.

“This means having policy consistency with the right fiscal incentives and focused on deliverable solutions,” he added.

“Getting this right will help support long-term growth, advance the UK’s position as a green finance hub and ultimately deliver on our climate commitments.”

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