(Mark Segal | ESG Today) UK’s Chancellor of the Exchequer Rishi Sunak announced today the publication of a new report, Greening Finance: A Roadmap to Sustainable Investing, outlining the country’s strategy for implementation of new Sustainability Disclosure Requirements (SDR) for businesses and asset managers.
The SDR forms a major part of the UK’s Green Finance Strategy, initially launched in 2019, aimed at establishing the UK as a center for international green finance, and aligning the financial sector and capital flows with the delivery of global and domestic climate and environmental objectives. The UK has launched several initiatives in pursuit of this strategy, including setting a commitment to mandate economy wide disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD), directing financial regulators to embed climate considerations in their policies and actions, and, most recently, completing an inaugural £10 billion Green Gilt issuance.
The roadmap sets out the next major steps to greening the UK financial system, with the establishment of disclosure requirements aimed at addressing the information gap for market participants, and ensuring a flow of decision useful sustainability information.
The roadmap aims to streamline the country’s existing climate reporting requirements under a single integrated regime, and extend the requirements further. Key requirements under the SDR include TCFD-aligned reporting for companies, and directing financial market participants to set out the environmental impact of the activities financed by investment products. The roadmap also introduces requirements, on a comply-or-explain basis, by some companies to disclose their net zero transition plans, with the expectation for an eventual wider rollout for these disclosures.
Additionally, the roadmap provides more details on the establishment of a UK Green Taxonomy, outlining clear criteria for economic activities to be considered environmentally sustainable. Companies and financial products will need to report their taxonomy alignment in terms of their environmental impact against these criteria.
Sunak said: “We are already a world leader in green finance, and today’s roadmap will give us the opportunity to set new global standards for sustainability that will boost the economy, protect the planet and support our net zero goals (...) We want sustainability to be a key component of investment decisions, and our plans will arm investors with the right information to make more environmentally-led decisions.”
Key milestones on the SDR timeline include TCFD reporting for some premium listed issuers, some standard-listed issuers and certain financial companies in 2022, mandatory disclosure requirements in annual reports incorporating UK Green Taxonomy and ISSB-issued standards for most “economically significant” companies within 1-2 years and for other companies in 2-3 years, and sustainability reports for funds over £5 billion in 2-3 years, followed by those over £1 billion (subject to future consultations on the requirements).
Investors welcomed the requirements set out in the UK’s roadmap, in some cases proposing more stringent reporting requirements. Kate Fowler, Senior Responsibility Analyst at the International business of Federated Hermes, said: “We support the ambition of the Roadmap published last night by the Government. We are pleased to see a number of key issues that we have been advocating for reflected in the roadmap – including the important role of stewardship, the need to focus on a real economy transition and consideration of a coherent framework with careful sequencing of corporate and financial institution disclosures. We believe the Government should go further than the ‘comply or explain’ approach proposed and make disclosure of transition plans a mandatory requirement across the economy, after the TCFD guidance on transition plans was published last week.”