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The UK Greening Finance Roadmap – what will it mean for corporate companies?

Did you know that in 2019, the UK became the first major economy to commit in law to net-zero greenhouse gas emissions by 2050? This year, the government has gone one step further to set in law the world’s most ambitious climate change target to cut emissions by 78% by 2035, compared to 1990.

 

70% of the UK public want their money to go towards making a positive difference to people or planet.

 

To support this transition, the Government has recently published its Greening Finance Roadmap, sharing details of the government’s ambition to make the UK the best place in the world for green and sustainable investment. It focuses on the Sustainability Disclosure Requirements (SDR), the UK Green Taxonomy, making engaged investors ‘stewards of capital’, and leading international efforts to bring about global and systematic change.

 

Key features of the Roadmap.

 

The SDR

Similar to the EU Sustainable Finance Disclosure Regulation (SFDR) the SDR sets out to guide UK-registered companies and UK-listed companies in their sustainable disclosure requirements. Once in place, companies will be required to disclose the following to review sustainability, opportunities and impacts via four key areas:

  • Governance
  • Business strategy
  • Risk Management
  • Metrics and targets

 

UK Green Taxonomy

To tackle climate change and protect the environment, the government is implementing the UK Green Taxonomy (‘the Taxonomy’), which will clearly state economic criteria companies must meet in order to be considered environmentally sustainable and therefore ‘Taxonomy-aligned’.

 

As stated in the roadmap, the Taxonomy aims to:

  • Create clarity and consistency for investors
  • Improve understanding of companies’ environmental impact
  • Provide a reference point for companies

Companies will have to make sustainability disclosures that will involve reporting under incoming international standards. They will also have to report environmental impact using the forthcoming UK Green Taxonomy through an integrated framework (the SDR).

 

This new regime will build on existing and forthcoming Task Force on Climate-related Financial Disclosures (TCFD) requirements for UK premium listed companies, standard listed companies, large private companies and LLPs, and asset managers and owners. These companies will need to publish credible climate transition plans.

 

Investor Engagement

According to research cited in the report, the public is becoming increasingly conscious of business sustainability efforts.

 

Data from the Investment Association finds that 49% of the £9.4 trillion in UK assets were integrating ESG in their investment processes in 2020, up from 37% in 2019.

 

As well as companies changing their behaviours, investors will have to act too. The roadmap calls for increased investor engagement, which could impact voting, divestment, and additional investment.

 

Business Transition Plans

As the standards for transition plans emerge, the government will incorporate them into UK regulation. The government has also said that it expects that the publication of climate transition plans will become ‘the norm across the economy’.

 

Despite there being no legal requirements at this moment in time, companies are strongly encouraged to consider and publish their transition plans.

 

Click here to read Greening Finance: A Roadmap to Sustainable Investing

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