The government has today published its roadmap setting out the steps needed to make the UK a leader in sustainable and ‘green’ investments.
As part of this roadmap the government will introduce new sustainability disclosure requirements. This bring together new and existing sustainability reporting requirements for businesses, the financial sector and investment products.
As well as making it easier for pension funds, investors and other financial services companies to analyse and compare the green credentials of individual companies, this should also help investors compare the green credentials of different financial products.
The policy paper Greening Finance: A Roadmap to Sustainable Investing is part of the wider long-term ambition to deliver on its net zero goals. The government confirmed today that the financial sector will have a key role to play in achieving this aim.
This roadmap sets out three key stages for greening the financial services industry:
- Informing – ensuring decision-useful information on sustainability is available to financial market decision-makers
- Acting – mainstreaming this information into business and financial decisions
- Shifting – financial flows across the economy shifting to align with a net-zero and nature-positive economy
This policy paper focuses on this first phase which will be delivered through these new economy wide sustainability disclosure requirements.
The paper contains more information on these requirements, which it says will streamline existing disclosure requirements, such as TCFD, with new requirements, including reporting on environmental impact.
These disclosure requirement will be consumer-focused and will be accompanied by a new label that will be developed by the FCA. It is hoped this will enable consumers to make informed investment decisions that take sustainability into account. The Treasury has added that these new standards and information will only be impactful if it is used to investors when deciding where to invest their money.
This policy report says that these new UK reporting rules will be in line with international standards. It points out the UK is a strong advocate for international standards of sustainability reporting and is preparing the ground to adopt international standards in this area, subject to consultation.
The government says these new sustainability disclosure requirements will be robust and credible. Asset managers, asset owners, and investment products will be required to substantiate sustainability claims they make to avoid cases of ‘greenwashing’.
The report calls on the pensions and investment sectors to take action on these issues, and outlines the government’s expectations that this will use the information generated to help shift their financial flows to align with a net-zero nature positive economy.
In the report’s introduction the chancellor Rishi Sunak says: “Investors and businesses must have the information they need to understand the full range of environmental risks they face and create.
“That information should be a key component of every investment decisions and the strategy of every business. Climate and environmental considerations should be central to the decsion-making process of every UK board and every investor’s risk and return calculations.”
Secretary of state for work and pensions Therese Coffey adds: “I am delighted to welcome this roadmap which sets out plans for sustainability-related disclosures that will take forward the government’s commitment to a sustainable financial system. It will empower pension schemes and savers to weigh these factors in all their financial decisions. It will also help tackle ‘greenwashing’.”
The report has been welcomed by the industry with The Pensions Regulator executive director of regulatory policy, analysis and advice David Fairs saying: “We welcome the roadmap’s ambition to address information gaps by setting new reporting requirements for financial sustainability, so every scheme can properly consider climate and the broader environment in their financial decisions.
“A warming world, loss of biodiversity and depletion of the natural environment all have the potential to worsen retirements through supply disruption, loss of assets or weakening an employer’s ability to support pension scheme funding. A shift to sustainable investment and a net zero economy can also provide opportunities trustees must also be alert to.
“The pensions industry must understand this issue is real and urgent. We need to make a step change to achieve a landscape of sustainable and resilient pension schemes where climate risk is managed and the opportunities from moving to a net zero economy are taken in the best interests of savers.”
Meanwhile LCP head of responsible investment Claire Jones says: “Over the last couple of years, there has been a raft of announcements from the government around ways to encourage and grow sustainable investing. This roadmap provides welcome clarity on these plans and how they fit together.
“As a society, we are facing a wide range of interconnected sustainability-related challenges which is why the intention to move beyond climate-related reporting to cover sustainability more generally is to be welcomed.
“Inclusion of company net zero transition plans is also to be welcomed, which will help investors align their portfolios with net zero emissions.”
However, LCP investment partner Dan Mikulskis adds: “Looking at asset managers, we don’t think these rules will be game-changing. Right now we see huge gaps between managers’ sustainability practices, particularly in stewardship, and we think this could be one of the most impactful areas if standards are improved.
“Investors will have to continue to do independent research into investment manager practices while there are these huge gaps in standards. Asset managers also need to better explain their thinking on climate change. This goes well beyond simply disclosing data and box ticking to meet regulatory requirements and involves helping clients understand how they should think about climate change, while providing data that can be effectively consolidated across a portfolio.”
