The UK Government has published its long awaited new Green Finance Strategy – its first comprehensive update in this field since 2019.
The Finance Ministry said, “we will ensure market participants have the information and tools they need to align to our climate and nature goals”.
The strategy sets out how the UK government will ensure that necessary finance flows to the UK’s net zero, energy security and environmental industries.
The government said it plans to work closely with, among others, the UK financial services regulators who have said they support the updated strategy.
The government has set a target to raise at least £500m in private finance to support nature’s recovery every year by 2027 in England, rising to more than £1bn per year by 2030.
“Today’s Green Finance Strategy is a marked improvement on the UK’s strategy in 2019 – with a welcome focus on mobilising investment across the country,” said Heather McKay, senior policy advisor, UK Sustainable Finance.
She added, “four Prime Ministers later and four years closer to climate catastrophe. The UK must move from consulting on promises to delivering results. 2023 will be a critical year for the UK to put its money where its mouth is on mobilising global green investment.”
A key plank is the government’s plan for Sustainability Disclosure Requirements (SDR), a streamlined disclosure framework for sustainability information, which is seen as critical to ensuring investors are able to access the sustainability information they need and protect against greenwashing.
“Fragmentation of green and sustainability standards is a big global risk for all stakeholders,” said Sima Kammourieh, senior policy advisor at E3G, an independent climate change think tank.
She said, “Above all, lacking a globally harmonised baseline on disclosure standards exposes consumers to significant greenwashing risks.
The commitment made today by UK government to pursue international engagement on, and support of, disclosure standards’ interoperability is absolutely essential to support the leaders, and stop the scoundrels.”
The strategy also covers the Green Taxonomy which will provide investors with definitions of which economic activities should be labelled as green.
They can either include mandatory targets for increasing the share of ‘green’ finance, or simply encourage changes from investors on a voluntary bases.
In either case, the idea is to stimulate the market and unlock much more private capital for activities that reduce emissions and restore nature.
The government expects to consult on the taxonomy in autumn 2023 and proposes that nuclear will be included within it, subject to consultation.
Within the Financial Conduct Authority’s (FCA) proposals on SDR and investment labels, the UK regulator noted that the UK Green Taxonomy, once developed, could be one way of demonstrating that assets meet a credible standard of sustainability.
The government said that after the taxonomy has been finalised, it will initially expect companies to report voluntarily against it for a period of at least two reporting years, after which it will explore mandating disclosures.
While developing an effective framework that is tailored to the UK market, the government will continue to work with international partners to maximise interoperability and harmonisation.
The paper also includes transition finance which comprises financial products and services that support higher emitting companies and activities to become green.
These instruments, which are generally used by companies seeking to reduce greenhouse gas emissions,include new instruments such as sustainability-linked loans and bonds and transition bonds have grown rapidly.
The government is commissioning a review – The Transition Finance Market Review – to consider what the UK financial and professional services ecosystem needs to do to become a leading provider of transition financial services and innovative instruments on the pathway to 2050.
Kate Levick, associate director for sustainable finance at E3G said,, Creating new regulatory norms for private sector transition planning is an urgent task if we are to unlock investment at scale for the Net Zero Transition.”
Alongside this strategy paper, the government has published a consultation: “Future financial services regulatory regime for Environmental Social and Governance ‘ESG’ ratings providers” which seeks views on whether ESG ratings providers should be brought into the FCA’s regulatory perimeter and on how this could be done.
The deadline for responses is 30 June 2023.
Asset managers oversee assets worth £10 trillion, with nearly half having integrated ESG into the investment process, the paper said.
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