Her Majesty's (HM) Treasury published a roadmap detailing the new sustainability disclosure requirements and the Green Taxonomy in UK. The roadmap highlights the importance of investor stewardship in green finance and reiterates the commitment of UK to the international leadership on green finance. The roadmap also sets out the long-term ambition of the government to green the financial system and aligns it with the UK’s world-leading net-zero commitment.
Greening the financial system can be seen in three phases: ensuring decision-useful information on sustainability is available to financial market decision-makers (phase 1); mainstreaming this information into business and financial decisions (phase 2); and ensuring that financial flows across the economy shift to align with the UK’s net-zero commitment and wider environmental goals (phase 3). This roadmap represents the government strategy to deliver Phase 1, which will be delivered through new economy-wide Sustainability Disclosure Requirements. The roadmap sets out implementation pathways for different sectors of the economy and provides more detail on the requirements, including that they will be:
- Integrated—Investment products, financial services firms, and real economy corporates will be required to report consistent information on sustainability.
- Streamlined—The regime will streamline existing disclosure requirements, such as the UK’s commitment to make reporting aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) mandatory, with new requirements, including on reporting environmental impact.
- Consumer-focused—Investment products will need to set out consumer-focused disclosures showing the impact, risks, and opportunities of the activities they finance on sustainability. This will be accompanied by a consumer-facing label developed by the Financial Conduct Authority (FCA) so that consumers can make informed investment decisions that take sustainability into account.
- Credible—Asset managers, asset owners, and investment products will be required to substantiate sustainability claims they make.
- Robust—Disclosure requirements will include reporting under the UK Green Taxonomy, which will provide a robust list of economic activities that count as environmentally sustainable.
- In line with international standards—UK is a strong advocate for international standards for sustainability reporting, and is preparing the ground to adopt international standards in this area (subject to consultation).
The roadmap highlights that the government will update the Green Finance Strategy in 2022. This will go beyond the timescales in this roadmap and set out an indicative sectoral transition pathway to 2050, to align the financial system with the net-zero commitment of UK. The updated strategy will assess industry progress on Phases 1 and 2. and will consider triggers for stronger policy to facilitate Phase 3 and help ensure that the UK meets its climate and environmental objectives.
Keywords: International, Banking, Principles of Responsible Banking, ESG, Climate Change Risk, Paris Agreement, Sustainable Finance, Financial Inclusion, UN, Biodiversity Loss, UNEP FI
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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