The UK government (the "Government") has long spoken of its commitment to tackling greenwashing and creating the world's first net-zero emissions financial centre. Read more about this in our client alert on the "Green Finance: A Roadmap to Sustainable Investment" policy paper and our client alert discussing the proposed greenwashing measures of the Financial Conduct Authority (FCA). On 30 March 2023, the Government published the latest update to its Green Finance strategy focussed on "Mobilising Green Investment" (the "Strategy").
Whilst the Government's commitment to green finance and reaching net-zero is welcomed, the response to the Strategy has been muted with a consensus building that if the Government is really serious about its aims, more concrete plans are required.
Key Objectives
The Strategy aims to reinforce and expand the UK's position as a leading green finance centre to deliver the following key objectives:
- UK Financial Services Growth and
Competitiveness – Assist the financial services
sector to grow and develop in a global economy adapting to climate
change. This includes encouraging venture capital support for
climate tech solutions, bank lending on renewables projects and
asset managers allocating capital to support companies of the
future.
- More Investment in the Green Economy –
To deliver on the net-zero objectives, the UK will have to raise an
additional £50?60 billion in total private investments each
year to support future technologies and enable traditional sectors
to adapt.
- Financial Stability – The Government
intends to create an effective green finance framework to ensure
that the finance sector has the information required to manage
risks arising from climate change and nature loss.
- Incorporation of Nature and Adaptation –
The Strategy will explicitly incorporate nature and climate
adaptation into the Government's green finance policy
framework.
- Alignment of Global Financial Flows with Climate and Nature Objectives – The Government intends to collaborate with international partners to support the alignment of global financial frameworks and stimulate investment in emerging and developing markets where capital needs are highest.
Key Takeaways
UK Green Taxonomy
The Government first set out its commitment to developing a Green Taxonomy in 2021. It will provide definitions of economic activities considered green and will help to support the reporting and labelling standards due to be introduced. A consultation on the UK Green Taxonomy is expected to take place in Q4 2023.
The Government has stated that it will work with other international partners to maximise harmonisation among the different global approaches.
Transition Finance
The Government is clear that transitioning to a "greener", net-zero economy will be more difficult for some industries than others. Consequently, the Strategy acknowledges that energy-intensive, high-emitting sectors will need support to develop and use innovative financial products to allow them to transition over a longer time-period. Transition financing is not new, but the Government will commission a "Transition Finance Market Review" to determine how the UK can become a leading provider of transition finance.
Transition Plans
The Transition Plan Taskforce is expected to publish guidance on how to develop and disclose transition plans. It is clear that the Government intends to increase the number of companies required to disclose transition plans by requiring the largest companies (and not just those listed) to disclose. A consultation on introducing disclosure requirements for larger companies is planned for Q4 2023.
Reporting
The Strategy provides a number of updates with respect to the myriad reporting requirements that have been implemented or are intended to be implemented:
- Sustainability Disclosure Requirements (SDR): The SDR proposals have been subject to a consultation process and the FCA has announced the final policy statement is expected in Q3 2023. Our previous client alert of 27 January 2022 discusses the mandatory TCFD-Aligned Disclosures in more detail.
- International Sustainability Standards Board's (ISSB) Standards: As soon as the ISSB Standards are published, the Government will formally determine whether they are suitable for UK companies.
- Company Applicability: The Government will review which companies must comply with reporting obligations and whether non-financial reporting should become mandatory.
- Greenhouse Gas (GHG) Emissions: The largest UK companies are already required to disclose their GHG emissions but not those generated in the value-chain of an organisation ("scope 3 emissions"). The Government intends to update guidance on collecting and reporting scope 3 emissions to give more information to investors assessing GHG emissions.
Conclusion
The Government has set out a holding statement on its Green Finance strategy in response to the actions of others (the United States and Europe, in particular). It appears that the Government realises there is much work yet to be done and has set out how it intends to finalise its plans. The plans are anticipated to be finalised by 2024.
Sakshi Rai, London trainee solicitor, contributed to the drafting of this alert.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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