The Road to Net Zero: Decarbonising bus fleets and meeting ESG objectives

The need for decarbonisation

The transport sector remains the highest emitting sector in the UK and is coming under increasing pressure to transition to decarbonised solutions. Significant progress has been made in recent years, with London now boasting the largest zero-emission bus fleet (ZEB) in western Europe, but the majority of the transport sector’s emissions still come from road vehicles.

ZEB fleets in the UK predominantly consist of battery electric buses which are charged at depots through mains electricity, with a small number of hydrogen fuel cell buses also in operation – as of October this year, London has almost 1,700 ZEBs of which just 20 are powered by hydrogen.

Unlike the zero emission vehicle mandate applying to cars and vans, there is currently no specific regulatory imperative to end the sale of new diesel buses (although this will be a crucial part of the general net zero targets and limits on emissions), leaving the transition to be driven forward by bus operators – many of whom have already set ambitious net zero goals and are actively investing in cleaner technologies.

Industry commitments to ESG

As well meeting net zero targets, the roll-out of ZEBs can help transport operators to deliver their wider environmental, social and governance (ESG) objectives. 

ESG objectives are critical because they demonstrate to investors, customers and the public that a business is operating with regard for the planet and the communities in which they operate. ESG has become increasingly important to UK business, as conscious investors now use ESG to screen potential investments. As a number of UK bus operators rely on private finance (including to fund the roll-out of new ZEB fleets and associated infrastructure upgrades), appealing to investors remains vital to the success of bus operators and the use of buses as a sustainable form of local transport. Our client, and ZEB lessor, Rock Rail was recently ranked number one for ESG performance across all sectors by GRESB – demonstrating the importance of such measures to investors in the sector.

The ESG impacts of ZEBs are wide-ranging, including:

• Environmental: It goes without saying that ZEBs deliver significant reductions in greenhouse gas emissions, as well as lowering overall energy consumption due to being more efficient than traditional diesel buses.
• Social: Reduction in tailpipe emissions will improve air quality in urban areas, contributing to better respiratory health for communities. ZEBs are also reported to offer a quieter and smoother ride, which is hoped to improve the overall passenger experience and potentially increase public transport usage. The production and maintenance of ZEBs can also create skilled jobs and stimulate economic growth for the country.
• Governance: While the UK government hasn’t yet created a mandate preventing the sale of new diesel buses, companies are generally coming under increasing pressure through environmental regulations to reduce emissions. Regulation is only expected to become more stringent as we move towards Net Zero targets and early adoption of ZEBs is likely to aid future regulatory compliance.

At Burges Salmon, we recognise the impact of ESG on organisations and provide comprehensive advice on all aspects of the ESG agenda, offering both strategic and operational support.

Overcoming obstacles on the road to decarbonisation

The journey to net zero has already begun, but it is clear that it will not always be an “easy ride”. We work with clients in the bus sector who are looking to find innovative solutions to challenges including the following:

• Depot charging infrastructure: Wholesale adoption of electric bus fleets will require significant investment in new depots and upgrades to existing depots to install charging infrastructure. Bus operators should consider opportunities to maximise the benefit of investment in infrastructure by partnering with companies operating EV fleets with charging needs during the day, while buses are in operation, which may provide additional revenue opportunities. We have previously advised First Bus on arrangements of this nature.
• Renewable power sources: To truly achieve net zero, operators must also consider the sustainability of their power sources and charging infrastructure. Bus operators can consider sourcing green power from renewable energy generators through private wire or corporate power purchase agreements, or investing in on-site renewable energy systems. New players in the market are offering innovative integrated generation and charging solutions (with opportunities to sell excess electricity to nearby buildings), such as the SolarCatcher solution that we advised on last year.
• Hydrogen production: Battery electric buses remain by far the more popular form of ZEB due to the difficulties in establishing hydrogen as a reliance, economic and sustainable fuel vector. However, the UK is at the forefront of the efforts to develop green hydrogen production with the government investing in trials to improve hydrogen supply infrastructure – these are currently focused on road freight (for example the Zero Emission Road Freight demonstration funding) but it is hoped that general improvements to the hydrogen supply chain will improve the viability of hydrogen as a fuel more generally.
• Cost: The total operating costs of electric buses can be significantly lower than those of diesel buses. However, acquiring the buses requires a more significant initial outlay – new electric buses cost can come at more than double the cost of a diesel bus. We have seen clients in the bus sector including Rock Road and FirstGroup establishing platforms and joint ventures to secure significant funding for the deployment of ZEBs.

Making the change

The transition to zero emission buses is not just a technological upgrade but a strategic move towards sustainable and responsible public transport. By continuing to invest in ZEBs and sustainable charging solutions, transport operators can significantly reduce their road-emission related carbon footprints, as well as aligning with broader ESG goals.

At Burges Salmon, we are well equipped to support the shift towards sustainable transport, including the transition to ZEBs, energy supply arrangements and broader ESG considerations. With our market leading and cross sector expertise, as highlighted in this article, we work with our clients to support them in achieving their net zero goals and ESG ambitions. 

For further information or advice related to any of the topics discussed, please contact Chris Simms, Chris Lewis, Charlotte Robinson or your usual Burges Salmon contact.

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