Doing well, doing good

October 2022

Innovation – true innovation – requires a mysterious recipe, part government policy, part social imperatives, and part economic enticements.  Add a bit of magic spice in terms of visionary boldness tempered by farsighted pragmatism.

Rarely, does this kind of transformative innovation come from incumbents.  Henry Ford was not a carriage builder; he was employed as an engineer with Edison Illuminating Company.  More recently, the quixotic Elon Musk was not a car company exec but a Silicon Valley dabbler who had made some money with a city guide business and a payments platform.  Indeed, of the original FTSE 100 – the foremost firms in existence at the time – less than 25% are still in the index.  Some 15% have gone bankrupt, split up, or were subsumed into another business.

The climate crisis requires this kind of proper disruptive innovation if we are to avoid the worst impact of climate change, and capitalise on the tremendous opportunity that is being presented to profit from a new industrial revolution – this one, green.

In this context, how about our government policy?  And in particular, where does the UK’s venerated levelling up program sit?  Does it create the necessary and sufficient conditions for innovation?  Particularly as it relates to the transition to a low carbon economy and the profound secular shift that the property industry must urgently make.

The levelling up policy was born out of a government white paper, and is billed as a complete “system change” of how government works, underpinned by 12 defining missions that government will seek to achieve by 2030 – from increasing R&D, to improving transportation quality, to deploying 5G coverage, and to more vague outcomes like improving our “pride in place” through our satisfaction with our town centres and engagement in local culture and community.

Notably, the white paper had an underwhelming focus on aligning net zero with levelling up.  The initial press release did not mention net zero at all, nor is climate featured explicitly in any of the 12 missions.  There was no new major funding or sustainable built environment initiatives.  No overriding focus specifically on green skills.

On the surface, this seems to have been a lost opportunity to redefine success and drive green innovation.  Indeed, even the courts agree.  Not long after the release of the whitepaper, a judge ruled in a high-profile climate case in July that the government’s overall plan for hitting net zero was unlawful because it provided insufficient detail for how the target would be met.  The judge put the government in a time out, saying it naughtily breached its own obligations under the Climate Change Act.

However, what the levelling up plan does do is provide a broad, relatively rich set of tools that are empowering to businesses and communities.  And it focuses on regional centres – themselves disruptive challengers to the incumbent southeast and the Oxford-London-Cambridge golden triangle.

Some 55 Education Investment Areas (EIAs) will be designated in local authorities in England and will benefit from intensive investment and support.  More than 95% are outside London and the southeast, in areas where school outcomes are currently weakest.  Three new Innovation Accelerators will be in Greater Manchester, the West Midlands, and Glasgow, with significant funding flowing into each, creating major place-based centres of innovation.

This is very much in line with our own philosophy of a just transition to net zero.  “Levelling up” is more than just regional one-upmanship and a rebalancing of national GDP from London to the regions.  But rather levelling the playing field for those who are at risk of being left behind by the “new economy” wherever they may be.

Not surprisingly, there is a correlation between prosperity and geography.  More than one in every two jobs in carbon-intensive industries are in the Midlands, the North and Scotland.  Parts of the UK that need to undergo the largest transition lie outside the southeast, often in some of the least well-performing areas of the UK.

While the transition to net-zero could be disruptive for these places, it also could be transformative.

The UK itself holds a Goldilocks position and truly can be the global leader in low carbon innovation.  English speaking, relatively good rule of law, relatively stable economy and currency, educated workforce, favourable time zone and taxes, with already well-established “new economy” businesses, notably tidal power, offshore wind, batteries, and carbon capture and storage.  Combine this with its position as a world-leading centre for green finance and a hub of venture capital investment, ranking first in Europe.  And lest we forget social innovation.  The Social Value Act is now 10 years old, and has helped solidify the UK’s global leadership in systemic thinking around the positive impact of capital.

Yes, the UK is already a hotbed of innovation in ESG.  And a lot of this is already happening in the regional centres.

Our role as real estate developers is to help accelerate this system change.  Neither government nor the private sector can do it alone.  As property investors and developers, we must support British innovation, even if this appears to mean taking greater risk.  We are already doing this here at FORE across our supply chain, from insisting on buying low carbon steel and cement, to backing UK-led proptech pioneers.  And by deploying our capital in and around the markets that the government has flagged for its interventions, a mutually reinforcing symbiosis.

The kind of transformative, innovative solutions we are talking about would benefit from clear and consistent government support to be successfully scaled across the UK.  But actually, we have the power to drive seismic shifts regardless, and demand that policy back it up.  Government must lead, follow, or get out of the way.

The first Industrial Revolution began in Great Britain in the 1760s, and many of the technological innovations deployed globally were of British origin.  We can – and must – lead this next green revolution, too.

The UK will need to invest £1.4 trillion between 2020 and 2050 to reach net zero.  This represents a tremendous challenge, but also one of the greatest opportunities in our lifetimes.

 

 

A version of this article first appeared in Estates Gazette