Chancellor Rishi Sunak chairs a virtual G7 finance ministers meeting from his offices in Downing Street | Credit: Treasury
Government confirms plan to require certain companies to produce net zero transition plans, as part of raft of new rules designed to crack down on 'greenwash' and make it easier for consumers and investors to support the green industrial revolution
Large businesses and investors in the UK will have to meet more stringent environmental reporting standards under new rules set out by the Chancellor in a report this afternoon.
The new Sustainability Disclosure Requirements (SDR), which will apply to large companies, as well as pension schemes, investment products, and asset managers and owners, are designed to create a more robust regulatory framework around the UK's rapidly growing sustainable investment market.
From streamlining existing reporting standards to mandating that investors justify their environmental claims, the new regime is designed to provide consumers and investors with greater transparency over the environmental credentials of their investments and cut down on the 'greenwashing' that undermines the sustainable finance market and threatens to slow the net zero transition, the government said.
The Treasury has also confirmed that it plans to take a more active role in pushing businesses to set out how they intend to transform their business operations in line with national climate goals. It said the SDR will "set out expectations for certain firms around the publication of transition plans in the context of the UK's net zero commitment".
The department touted the SDR - which are detailed in a new report entitled Greening Finance: A Roadmap to Sustainable Investing - were part of its "plan for the UK to lead the world in green finance and sustainable investing".
"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," said Chancellor Rishi Sunak. "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".
First announced earlier this year by the Chancellor, the new SDR will bring together and streamline existing climate reporting requirements, including the government's previous pledge to implement mandatory reporting aligned with the Task Force for Climate Related Financial Disclosures (TCFDs).
Under the new regime, all investment products must detail the environmental impact of the activities they finance, with all sustainability claims "clearly" justified. Asset managers will also need to set out how they incorporate sustainability into their investment strategy.
In addition, the roadmap will set out more details on the direction and shape of the new Green Taxonomy being drawn up by the Treasury, which is set to establish a rulebook for defining which economic activities can be classified as 'green'.
The government touted its roadmap as a "call to action" for the pensions and investment sector, highlighting how the dosclosures reqired under the SDR should provide tools for major financial actors that would help them shift financial flows towards a net zero economy.
It said that details on specific reporting requirements, including their scope and timing, would be developed following public consultation.
The Treasury's roadmap was welcomed by the Confederation of British Industry (CBI), with the business group's chief economist Rain Newton-Smith arguing that enhanced standards for environmental reporting would be "key" to transitioning the financial system to support greener business models and practices.
"Greater clarity on environmental impacts will help investors channel finance into projects that are aligned with net zero targets and will reduce carbon emissions across our economy," she said. "Business looks forward to working with the Government to design this new framework."
Chris Cummings, chief executive of trade body the Investment Association, similarly applauded the plan, which he said "sets out a clear timescale for introducing economy wide sustainability-related disclosures".
"In particular, we are encouraged to see the emphasis on addressing the data gaps and the flow of sustainability information from investee companies through to investment managers and to consumers," he added. "This supports the responsible allocation of capital and ensures that savers have clarity, confidence, and choice when investing. We are also pleased to see the emphasis on investors' role as stewards of their clients capital in achieving this ambitious but critical green finance agenda."
The proposals were also welcomed by Josie Murdoch, Senior Policy Officer at the Aldersgate Group, who said: "We welcome the government's plans for greening the financial sector and embedding climate and the environment into decision-making for financial institutions and corporates, as well as into investment products. Three elements of the new Roadmap are particularly welcome. Firstly, the plan to integrate different disclosure frameworks within the Sustainability Disclosure Requirements (SDR) integrated framework, which will be based on the Taskforce for Climate-Related Financial Disclosures (TCFD) framework. This will reduce reporting burden for businesses. Secondly, the SDR requirement for firms to publish transition plans that align with the government's net zero commitment, on a comply or explain basis. Thirdly, requiring companies to disclose which proportion of their activities are aligned with the new UK Green Taxonomy will help to prevent greenwashing."
However, she also urged the government to ensure the UK SDR and its taxonomy are aligned with other international frameworks, such as the EU's Sustainable Finance Disclosure Regulation (SFDR). "This will simplify the reporting process and ensure that businesses operating in several jurisdictions are not subject to multiple reporting requirements that may be incompatible," she said. "A timeline setting out when the different elements of this new regulation will be introduced would also help businesses prepare for these new reporting standards. Finally, a further commitment on requirements for businesses to publish net zero transition plans ahead of COP26 would be welcome. By making it mandatory for large businesses to publish plans on how they will ensure their operations and investments are aligned to the UK's net zero target, government will send a clear signal on green finance and demonstrate leadership at the international level."
The new rules were published just a few hours before the Department for Business, Energy, and Industrial Strategy (BEIS) is expected to publish the long-awaited Heat and Buildings Strategy, which will outline its plans to slash emisisons from the UK's building stock.
Critics have accused the Treasury of watering down the plans and failing to provide the levels of funding required to turbocharge green improvements across the UK's building stock.
