Net-zero: the £1 trillion-plus opportunity to create social value in the UK
Coming out of the COVID-19 crisis, the UK has a real chance to deliver an investment-led recovery that both accelerates climate action and cuts the inequalities that in many respects have been deepened by the pandemic. In the 2021 Budget, the Chancellor Rishi Sunak made clear in updated remit letters to the Bank of England that the Government’s economic strategy now includes “structural reform to level up opportunity in all parts of the UK and to transition to an environmentally sustainable and resilient net zero economy”.
This dual focus is also at the heart of the new UK Infrastructure Bank, a critical anchor institution for mobilising investment for both net-zero and supporting local and regional economies. Growing numbers of banks and investors have also committed to support the delivery of net-zero through a just transition for workers and communities across the country. Public bodies, business and investors, along with communities and citizens, need a consistent approach that connects the economic, social and environmental dimensions of this unprecedented transition.
The size of the ‘green CAPEX’ prize
The sums involved are significant. To achieve net-zero alone, extra capital investment in the UK will need to grow fivefold from £10bn per year in 2020 to £50bn in 2030, according to the Climate Change Committee. Investment levels will peak around 2035 and stay at around £50bn each year through to 2050. This will deliver significant environmental and social benefits, but also real economic gains, not least in terms of reduced energy and resource consumption. Taken together, this extra capital expenditure (CAPEX) will amount to well over £1trn between now and 2050.
Add in resilience and wider nature restoration goals and the UK’s ‘green CAPEX’ to 2050 will be a sizeable lever not only for bringing environmental security, but also improving social outcomes for Britain’s workplaces, households and regions. The challenge is how to make these synergies come to life.
Joining the dots
One ready-made approach that could be used to deliver this ‘win-win’ opportunity is Social Value. Although there are many definitions, the essence of Social Value is to identify the wider benefits of public decisions and business activities for people, the economy and the environment. In the UK, implementation has focused on the public sector, notably through the 2012 Public Services (Social Value) Act, which required public bodies to “consider” social value in the services they commission and procure. These provisions have recently been tightened and since January, all central government contracts – worth £49bn a year – need to explicitly evaluate social value, with a 10% minimum weighting. A growing number of local authorities, businesses as well as investors are implementing this joined-up approach, supported by collaborative initiatives such as the Social Value Portal.
The Portal provides a consistent decision-making framework across five critical Themes (see below), 20 core Outcomes and 48 key Measures (TOMs). The TOMs started out as a tool for government and businesses in the procurement process to communicate social priorities, compare tenders, ensure commitments get translated into outcomes and report performance in a transparent manner. More recently, the application of the TOMs has begun to expand beyond procurement and its user base has broadened to include a number of institutional investors (notably those involved in real estate and infrastructure).
The five critical themes of Social Value are:
- Jobs: Promote local skills and employment
- Growth: Supporting growth of responsible regional business
- Social: Healthier, safer and more resilient communities
- Environment: Decarbonising and safeguarding our world
- Innovation: Promoting social innovation
For the UK’s transition to a net-zero economy, two features of the Social Value framework stand out as being particularly valuable. The first is its place-based dimension. Here, the Social Value Portal has launched its first pilot project to develop place-based TOMs with Durham City Council. The second feature is the recognition of the interconnectedness of climate action and the wider social value imperative. The online TOMs tool, for example, has specific outcomes and measures on improved skills for a low-carbon transition – and these feature in the Jobs pillar rather than the Environmental pillar. In the 2021 TOMs launched in May 2021, the Social Value Portal has added further measures related to the just transition, for instance collective bargaining, illustrating the increasing consideration of just transition in the framework.
Technological solutions can also help to reduce the time and cost burden of taking social impact into account in decision-making. The Ariba Network is a digital marketplace that aims to connect companies with social enterprise suppliers. Social enterprises are businesses with a social or environmental mission that reinvest or donate at least half of their profits for positive social or environmental impact. Around £2trn in business-to-business transactions are made annually through the platform. In the UK alone, this translates into over £65bn worth of commerce – roughly 3% of the UK’s GDP.
Getting strategic about social value in the net-zero transition
With its roots in the world of government procurement, Social Value could be a major tool for creating positive spillovers for people and places as the UK’s future ‘green CAPEX’ boom gets underway.
Local and central government need to make the linkages between the environmental and the human the norm in all they do. The importance of this is being increasingly recognised. In Scotland, for example, the Just Transition Commission has recommended that all public funding for climate action should be conditional on Fair Work terms. Looking beyond classic procurement, the UK Infrastructure Bank could use Social Value to show how it is implementing its dual objectives. More broadly, the provision of public incentives and support for energy, industry, housing, transport and nature in the net-zero transition could be tied to the use of the framework to drive a race to the top in terms of social outcomes. Businesses, banks and investors could also commit to deploy Social Value as a way of overcoming the silos that often exist between the environmental, social and governance (ESG) pillars of sustainable finance.
There’s no lack of grand visions for a green and just recovery from COVID-19. The Social Value framework offers a mechanism of driving granular outcomes across the country.
The views in this commentary are those of the authors and do not necessarily represent those of the Grantham Research Institute.