For UK financial advisers only, not approved for use by retail customers

New requirements for firms as the UK moves to finance the climate transition

Yesterday, the UK released a Roadmap that sets out key measures for greening the financial system and financing the UK’s net zero target, and promising a further, more detailed, financial sector strategy for the net zero transition in 2022.

The centrepiece of the Roadmap is a new Sustainability Disclosure Requirements (SDR) regime which will put an onus on corporates, asset owners, asset managers, and marketers of investment products, to explain the climate risks and impacts of their activities.

Financial firms will now be expected to publish climate transition plans. This game-changing adjustment to financial regulation was recently called for in a letter by leading UK companies,3 later echoed by the Labour party.4 The UK’s initial requirement is for a ‘comply or explain’ approach but the Roadmap signals that it will become fully mandatory in time.

The Roadmap also outlines next steps for the new UK Green Taxonomy which will define what investments are considered “green”, building on the precedent set by the EU and adjusting it for the UK context. The taxonomy is expected to use science-based principles to guide future private and public financial investments in the UK climate transition.

Kate Levick, E3G Associate Director, Sustainable Finance, said:

“As these exciting new policies are developed in detail it will be crucial that they remain aligned with scientific advice and send clear market signals of the urgency and scale of the required shift in investments. The 2022 Green Finance Strategy will be key to the UK’s future success as an international hub for green investment and green finance expertise.”

Heather McKay, E3G Policy Advisor, UK Sustainable Finance, said:

“Net Zero is the biggest investment opportunity the UK has ever seen – and appetite from the market is growing. To support investors in capturing the opportunities of net zero, clear signals need to be sent by government on what is green and what is not. The crucial step now is to ensure the UK Green Taxonomy is science based – critical to tackling greenwash.”

Iskander Erzini Vernoit, E3G Policy Advisor, said:

“The commitment to require transition plans marks a step change in approaches to greening finance and corporate activity. It is world-leading action from this year’s UK COP Presidency, although more will be needed to re-align investments away from a catastrophic climate future—the move to mandatory disclosures must be underpinned by clear sector-specific guidance on aligning with 1.5C.”

Responding to the publication of Treasury’s new report: Greening Finance: A Roadmap to Sustainable Investing, Chris Cummings, Chief Executive of the Investment Association, said: “As COP26 approaches, the UK’s investment management industry is in a pivotal position to support the transition to a net zero economy. We therefore welcome the Treasury’s Roadmap to Sustainable Investing, which sets out a clear timescale for introducing economy wide sustainability-related disclosures. In particular, we are encouraged to see the emphasis on addressing the data gaps and the flow of sustainability information from investee companies through to investment managers and to consumers. This supports the responsible allocation of capital and ensures that savers have clarity, confidence, and choice when investing. We are also pleased to see the emphasis on investors’ role as stewards of their clients capital in achieving this ambitious but critical green finance agenda.

“Ultimately, strong and coherent policy to align all sectors in which our industry invests with the UK’s net zero commitment is vital, and we support the update to the Green Finance Plan in 2022, with more detailed sectoral transition pathways. We look forward to working closely with industry, the government, regulators and our clients to implement these proposals, which will underpin efforts to address climate change with the urgency that it demands.”

 

  1. E3G is an independent climate change think tank accelerating the transition to a climate safe world. E3G specialises in climate diplomacy, climate risk, energy policy and climate finance. -> About

 

  1. See: https://www.bloomberg.com/news/articles/2021-10-10/aviva-tesco-want-u-k-to-mandate-corporate-net-zero-plans

 

  1. See: https://labour.org.uk/press/labour-calls-on-government-to-mandate-1-5c-aligned-transition-plans-for-financial-institutions-and-major-companies-to-turbocharge-the-global-shift-to-net-zero-and-make-the-uk-the-green-finance-capital/

 

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