How does today’s Budget affect UK ambitions relating to ESG, climate, nature and sustainability

1. CBAM (Carbon Border Adjustment Mechanism)

The UK government has published draft CBAM legislation, and policy updates aiming to introduce a UK CBAM from 1 January 2027 for carbon-intensive imported goods such as steel, aluminium, cement, fertiliser, glass, ceramics and hydrogen. This is a significant step to prevent carbon leakage and protect UK industry from overseas competitors with lower emissions standards.

However, CBAM was not specifically referred to in the 2025 UK Budget as being new. Instead, 2025 is being used by the government to finalise the legislative and administrative structure ahead of the planned 2027 launch.
 

2. Net-zero

The Budget shifted a number of green levies away from energy bills into general taxation, as well as announcing the scrapping – or substantial reduction – of the Energy Company Obligation (ECO) from April 2026.

In addition, heat-pump subsidies are to be tightened.

The government argues that theses measures should reduce household bills by circa £150 per annum.

There is a danger that this type of action may provide short-term political relief at the cost of long-term risk. Moving levies to taxation makes bills lower immediately, but removing or shrinking the ECO and broad heat-pump support threatens the retrofit market, potentially slows insulation uptake – one of the major sources of emissions reductions – and risks jobs in the retrofit supply chain, as well as potentially increasing long-term energy demand and emissions if left unaddressed.

In addition, poorer-quality housing and under-insulated homes can have a significant effect on health and energy demand. Cutting retrofit support can then indirectly worsen environmental and social outcomes.
 

3. Electricity, renewables, and support for industry

As a result of the Budget, 75% of the Renewables Obligation cost will be transferred to general taxation, thereby reducing bills. The Budget also doubled down on industrial competitive measures such as the British Industry Supercharger to lower electricity costs for energy-intensive users.

Lowering electricity policy costs on bills helps consumers and potentially accelerates electrification. Conversely, moving subsidy funding means potentially undermining investor cashflows for some renewable projects unless the transition is extremely well managed. If investors perceive higher regulatory risk, deployment could slow. The Industry Supercharger reduces costs for heavy industry, which could improve their global competitiveness, but potentially weakens the price signals that push those sectors to decarbonise faster.
 

4. Nuclear and low-carbon power

The Green Financing Framework has been updated to explicitly include nucler power as eligible for green guilts and green savings bonds. The Budget highlighted SMR and Sizewell C progress, as well as government support for nuclear projects.

These moves are positive for achieving a low-carbon baseline and improving investor certainty. Recognising nuclear in green financing will make capital cheaper for large projects, accelerate deployment plans, and diversify the low-carbon mix. Nevertheless, nuclear projects are complex, have long lead-times, and require careful environmental governance, making this offer a longer-term benefit. Including nuclear in ‘green’ definitions is politically contested, but it does pragmatically support energy security and emissions goals.

For green investors, nuclear-eligible green gilts widen investable supply although asset managers will need to be aware of taxonomy and eligibility details, and environmental safeguards.

5. Fossil fuels

The Budget did not appear to include new, large direct subsidies for fossil fuel expansion. The major ‘headlines’ focused on electricity costs, redistribution of levies, and industrial competitiveness. However, moving levies off bills, and lowering electricity costs – and reducing incentives for electrification – could indirectly prolong the use of gas heating if heat-pump uptake slows.If energy-efficiency and electrification supports are reduced, this could lock in fossil-fuel demand in buildings.
 

6. Transport – EVs, charging and eVED

The Budget offered strong EV support with the extension of the Electric Car Grant promising £1.3 billion through to 2029-30. In addition, £100 million plus a further £100 million is pledged for more charge-points, and local authority training. The biggest change though was the introduction of eVED (electric Vehicle Excise Duty), a mileage-based charge for EVs and plug-in hybrids from April 2026, with consultation.

Larger subsidies and infrastructure funding should accelerate EV uptake and reduce range and charging anxieties. The planned eVED introduces user charging for mileage and could be neutral for emissions if structured fairly, although it is likely to bring both political and behavioural issues. 
 

7. Green investment and finance

The Budget included continuing the Green Financing Programme growth and inclusion of nuclear as eligible. In addition, retail green savings products continue. This supports green infrastructure financing and ESG-linked products.

Asset managers and corporates will need to align projects to the updated Green Financing Framework and should expect increased demand for credible green assets as well as rigorous disclosure to qualify.
 

8. Business compliance and industry supports

Aside from CBAM, the Budget included industry electricity reliefs under the British Industry Supercharger, and consultations and legislation that create new compliance obligations (CBAM) and potential administrative burdens.

CBAM will raise compliance costs but strengthens decarbonisation incentives. Industry electricity reliefs help competitiveness but may reduce decarbonisation pressure on heavy industry. Businesses will need to invest in carbon accounting, sourcing data and supply chain decarbonisation.

As the rumour mills continue to churn, it is difficult to predict the degree of prominence the Budget will give to climate and nature issues.