Need help reading this page? Click to activate Recite Me popup.

 

 

Taking stock of the UK’s Seventh Carbon Budget

"As the UK’s largest financial services provider, we recognise the impact and responsibility we have in driving the transition to net zero and creating a more sustainable and inclusive future for both people and businesses." 

Andrew Walton
Chief Sustainability Officer and Chief Corporate Affairs Officer
Published on: 06 March 2025
5 min read

Transitioning to a net zero economy remains critical for both governments and financial institutions. But despite the urgent need to address our changing climate, global progress is slow, with many businesses and institutions grappling with seismic economic transformations, complex regulatory requirements and a testing geopolitical landscape. 

Against the backdrop of these global challenges, the UK’s submission of its Nationally Determined Contribution to cut emissions by 81% by 2035 and the publication of the Seventh Carbon Budget by the Climate Change Committee (CCC) provide welcome direction. In its latest stocktake of emissions, the CCC underlines the role that public policy support must play in unlocking a low carbon future for the UK and underlines the enabling role of private sector finance. 

The Seventh Carbon Budget emphasises the need to reduce demand for high-carbon activities, roll out low-carbon technologies and integrate adaptation into net zero plans across key sectors of the UK economy, including energy, residential buildings, transport and agriculture. 
 

According to the CCC, achieving these measures will not only help tackle climate change, but also bring significant economic benefits – such as energy cost savings and job creation. A striking finding of the latest budget is that the cost of transition is much lower than anticipated. If the pathway set out in the budget is followed, the net cost of transition is expected to represent less than 0.2% of UK GDP.1

What’s more, in key areas, investments made this decade are expected to create savings over time, with net annual costs becoming negative by 2041.2 So, beyond meeting a legally binding target to reach net zero by 2050, investing in transition now can unlock significant opportunities for economic growth – and help shape the resilience and prosperity of the UK for generations to come. 

This is where Lloyds Banking Group can play a key role. As the UK’s largest financial services provider, we recognise our significant role and responsibility in supporting the transition to net zero. It’s key to how we’ll grow our own business and help deliver a more sustainable future for our 28 million UK customers.

 

Sustainability Report 2024

This report provides an update on our progress towards the Group’s sustainability ambitions, targets and pledges. It highlights our sustainable and inclusive growth opportunities and the activities we are undertaking to understand and manage our ESG-related risk. It also includes our climate transition plan.

Download the report Opens in a new tab (PDF, 11MB)

 

Unlocking investment for transition 

As highlighted in both the CCC’s analysis and the 2024 Budget, private sector investment will play a crucial role in tackling climate change: it is expected to provide 65-90% of the financing required between 2025 and 2050.3 We are proud of our continued efforts in this area; we’ve provided over £47 billion of sustainable finance since 2022, and our contribution continues to grow, reaching £17.5 billion last year alone.

Additionally, we have invested over £25 billion in decarbonisation strategies through Scottish Widows since 2021. Unlocking these kinds of financial flows towards transition is key to seizing the opportunities available in the new technologies of the transition. They are growing our business and making a real impact for customers and communities across the UK. 

As well as making plain the level of private capital needed, the Seventh Carbon Budget emphasises the levers that government and the market need to pull to reach net zero. While less prescriptive than previous carbon budgets, one point remains abundantly clear; it’s all about electrification. In fact, according to the latest budget, electrification and low carbon electricity supply makes up 60% of the UK’s target emissions reduction between now and 2040. This will include rapidly decarbonising the grid and replacing fossil fuelled cars and heating systems with electric alternatives, namely electric vehicles and heat pumps. 

We’re committed to backing the UK’s move towards a cleaner energy system that can power growth. We supported Statera Energy in securing £400 million of financing for the UK’s largest operational battery-storage system, which will be up and running later this year. As the Sole Structuring Bank, we backed the construction of Thurrock Power, a 450MW flexible generation project in Essex.4

This demonstrates our ongoing commitment to supporting the UK’s sustainable energy transition and marks another step towards greater flexibility and resilience for the UK’s energy system. Once operational, Thurrock Flexible Generation will be one of the largest storage and flexible generation co-located assets in Europe, playing a critical role in balancing the future low-carbon grid.

We are also deeply embedded in the UK’s housing sector and want to increase the number of safe, affordable and sustainable homes. Last year, we provided an additional £2.2 billion of support to the social housing sector, with £1.2 billion of that support linked to sustainability outcomes. In 2024, together with the National Wealth Fund (NWF), we signed a £500 million funding commitment to support the retrofit of social housing in the UK.5 This marked the first investment after Chancellor Rachel Reeves transformed the UK Infrastructure Bank into the NWF last year.

The funding is designed to be flexible and competitively priced, helping housing associations achieve their net zero ambitions. With improvements like low carbon heating and better insulation, this initiative aims to create warmer homes, lower bills, and better outcomes for residents. It's a big step towards a more sustainable and comfortable future for everyone involved. Alongside working with housing associations to increase the provision of more sustainable homes, we continue to support our customers with retrofitting through our Green Mortgages and Green Living Rewards which offer cashback and support for home improvements, including insulation, solar panels and heat pumps. 

Helping farmers on their net zero journeys

Hear from Helen Browning, farmer and CEO, Soil Association on the challenges facing farmers. And Victoria Read, Relationship Director of  Agriculture, visits Southend farm in West Sussex to find out how the Group's partnership with Soil Association is helping them on their transition.

Watch video

The critical role of nature

Nature-based solutions, like planting new woodlands and restoring peatlands, play a crucial role in enhancing land-based carbon sequestration - as well as generating a wider range of benefits from biodiversity to potential new sources of income for land managers, including farmers. In its most explicit focus on the role of nature to date, the Seventh Carbon Budget highlights the need to boost woodland creation in the UK, recommending that woodland accounts for up to 16% of UK land (compared to 13% today) and up to 19% when including trees outside of woodlands.

Since the beginning of 2020, we’ve been working with The Woodland Trust with the aim of planting 10 million trees by the end of the decade. Our partnership also offers subsidised rates for farmers to plant trees and hedgerows on their land through the MoreWoods and MoreHedges scheme. As the largest lender to the UK agricultural sector, we have also partnered with the Soil Association Exchange to help UK farmers achieve increased profitability and productivity by moving to more sustainable practices.

Together, we've conducted the most comprehensive review of UK farm environmental performance, covering 238,494 hectares; and worked with nearly 1,000 farmers to develop tailored plans for their businesses, focusing on key areas like soil health, carbon, biodiversity, animal welfare and water. 

In further recognition of nature’s role in addressing climate change, in 2024, we became a founding partner of Projects for Nature. In the first year of this partnership, we have invested in three landmark projects in England designed to address national nature recovery priorities, including flood management, creating wildlife corridors, and supporting regenerative agriculture. We’re taking the learnings about commercial and environmental benefits of nature-based solutions to support our long-term strategy.
 

Looking to the future

By focusing on the key areas of the UK’s Seventh Carbon Budget, we can better identify and prioritise the most critical risks and opportunities involved in transitioning to net zero, and ensure we are well placed to reap the rewards and growth available in the process. We will continue to work constructively with government, industry, and our customers to support the UK’s transition. 

At a time when the nature of the sustainability conversation has changed, the imperative to protect our climate and the opportunity this presents for our business and the wider economy remain. A warming planet and a degraded natural environment won’t help the future strength and prosperity of our economy. As the Seventh Carbon Budget points out, the UK is a global leader in climate action. The task now is to stay the course to ensure the long-term resilience of the financial sector and our economy as a whole.6

Sustainability  Supporting business

Andrew Walton
About the author Andrew Walton

Chief Sustainability Officer & Chief Corporate Affairs Officer

Andrew joined the Group as Chief Corporate Affairs Officer in December 2018, taking on responsibility for internal and external communications, reputation management and public affairs. In October 2023 Andrew also took on the role of Chief Sustainability Officer, responsible for shaping the Group’s approach to environmental sustainability and responsible business.

Prior to joining the Group, Andrew was Senior Managing Director and Global Head of Financial Services for the strategic communications segment of FTI Consulting.

Follow Andrew on LinkedIn.

Andrew's background Read Less

Related content