Large UK firms will have to start disclosing climate impact with annual filings
The government will force big businesses, large asset managers and institutional investors to reveal their sustainability credentials under a fresh, green reporting regime launched today by the Treasury.
The new rules state that an investment product will now have to set out the environmental impact of the activities it finances through the new sustainability disclosure requirements (SDR).
For businesses, this means they will have to justify all sustainability claims which generate from an investment. Businesses will also need to tell investors how they are focusing on green investments in their strategy.
The new policy is intended to clamp down on ‘greenwashing’, unsubstantiated or misleading claims that a business is environmentally friendly, and make it easier for investors and consumers to understand how a firm is impacting the environment.
With hundreds of new sustainable investment funds coming to market each year and sales to UK retail investors tripling from 2019 to 2020, consumers and investors of all sizes will be able to make more informed decisions, and businesses will be supported as they plan to transition to net zero.
In addition, the government will also launch its Green Taxonomy, a common framework setting the bar for investments that can be defined as environmentally sustainable.
The Green Taxonomy is seen as an important step in the Government’s efforts to boost investment in projects that accelerate the transition to a sustainable economy, create green jobs and support the UK’s environmental goals.
World leader in green finance
Chancellor Rishi Sunak said: “[The UK is] 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.
“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.”
He said the rules will “set new global standards for sustainability that will boost the economy, protect the planet and support our net zero goals”.
It remains unclear when the rules will come in, or what will happen to firms that do not comply. Details of the specific reporting requirements will only be developed after a public consultation.
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).
It has been argued this roadmap will enhance standards for environmental reporting, with the new rules essential in transitioning the financial system towards greener business models and practices.
The new clarity on environmental impacts is set to help investors channel their finance into projects that are aligned with the UK’s net zero targets and will reduce carbon emissions across the economy.
There are three key elements of the new roadmap which have been widely welcomed by businesses:
Firstly, the reporting burden for large businesses will be heavily reduced with 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.
Furthermore, the SDR also places a requirement for firms to publish transition plans which align with the government’s net zero emissions commitment, ensuring the economy moves towards sustainable energy sooner rather than later.
Finally, if companies are required to disclose the extent and proportion of their activities which align with the UK Green Taxonomy, it will ensure investors have the information they need to make informed decisions about where to put their money.
With clarity on the indicative path towards economy-wide disclosures released in the Treasury’s roadmap, businesses and financial firms must now consider the steps they need to take to build their capabilities to produce disclosures, and to act on the information they provide.
Questions about sustainability?
Businesses will come under greater scrutiny from Government after the launch of new green rules to drive sustainability and meet 2050 Net Zero obligations.
Navigating their Net Zero journey will be far easier if they can pinpoint waste and also plan carbon savings going forward.
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