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How will the UK become a world leader in green finance... and what will firms need to do to help achieve this? 

02 December 2020

Last month Rishi Sunak, the Chancellor of the Exchequer, gave his first ministerial statement on the financial services industry. As part of this statement, the Chancellor laid down the UK Government’s ambition of being the world leader in green finance. 

Action against climate change has remained a priority for the government and regulators internationally this year in spite of the COVID-19 pandemic. The statement from the Chancellor coincided with the first day of the Green Horizon Summit hosted by the City of London Corporation, the Green Finance Institute and supported by the World Economic Forum in which Mark Carney UN Special Envoy on climate action, made a keynote address. This made the 9 November 2020 feel like somewhat of a landmark date in the global fight against climate change. 

Firms across the financial sector, as well as other listed commercial companies, will need to begin incorporating climate change risks into their strategy and risk management frameworks. This is in order to be able to identify the climate-related information they will required to monitor and disclose, and to consider how to implement the relevant processes to be able to do this.

TCFD Roadmap

High quality disclosures about how organisations and assets will be impacted by climate change remains a primary tool for driving investment in more sustainable activities. The voluntary adoption of the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations has been limited to date and given the urgency of climate change, the voluntary approach is no longer be sufficient. As a result, the Chancellor’s announced within his statement that the UK will become the first country in the world to make TCFD-aligned disclosures mandatory across the UK economy by 2025.

Following the Chancellor’s statement, a TCFD roadmap was published to illustrate how disclosures are due to increase over the next five years. The roadmap also sets out a co-ordinated strategy for the different categories of organisation to ensure that the right information on climate-related risks and opportunities is available across the financial investment chain. Initial steps have been taken by the regulators and the roadmap will continue to build on these steps, with the FCA and PRA also proposing further measures for some organisations.

In summary, the TCFD road towards mandatory disclosures for each organisation is as follows:

  • Listed commercial companies: 100% by 2022
  • UK-registered large private companies: 50% by 2022
  • Insurance Companies: 89% by 2022
  • Asset managers: 75% by 2022, increasing to 96% by 2023
  • Life insurers and FCA-regulated pension schemes: 89% by 2022, increasing to 98% by 2023
  • Occupational pension schemes: 72% by 2022, increasing to 85% by 2025.

In order for the disclosures to be useful for users, they need to be comparable and this will be an important focus of the regulators over the next few years. The IFRS are proposing to create a new, global Sustainability Standards Board and an alliance of voluntary standard-setting organisations are working towards harmonisation.

Additional measures to move towards a net-zero carbon future

The Chancellor also outlined additional proposals to support sustainable financial flows to help the UK meet its 2050 net-zero target. This includes:

  1. The UK will issue its first Sovereign Green Bond (debt securities issued by governments where the proceeds raised are used to finance projects that have environmental benefits) in 2021 and following up with further issuances to meet growing investor demand; and
     
  2. The UK are to develop a green taxonomy to improve understanding of the impact of firm’s activities and investments on the environment. The taxonomy will use scientific metrics in the EU taxonomy as its basis and establish a UK Green Technical Advisory Group to review the metrics and ensure they are aligned with the UK market.

Further information

If you would like further information, please contact Richard Weighell (Financial Services) or Fiona Davis (Risk Advisory Services).

Read more about the Chancellor’s update here.

TCFD roadmap