UK releases Green Finance strategy signalling potential for mandated climate disclosures among other government actions

By Robin Hamaker-Taylor

The UK government released its Green Finance Strategy in early July, coinciding with London Climate Action Week. The strategy is a reflection of the UK Green Finance Taskforce recommendations and sets out a plan to mobilise finance for clean and resilient growth in the UK. The release of this strategy marks the continued support of the UK Government for an orderly and just transition away from fossil fuels and toward a climate resilient economy.

The strategy has two objectives:

(1) To align private sector financial flows with clean, environmentally sustainable and resilient growth, supported by Government action; and

(2) To strengthen the competitiveness of the UK financial sector. The first two chapters of the strategy sets out information relating to between ‘greening finance’ and ‘financing green’ and the final chapter includes expectations relating to capturing the opportunity arising from the ‘greening of finance’ and the ‘financing of green’.

Greening Finance and potential disclosure requirements

This section of the strategy aims to ‘ensure current and future financial risks and opportunities from climate and environmental factors are integrated into mainstream financial decision making, and that markets for green financial products are robust in nature.’

Actions the UK Government are taking to ensure climate and environmental factors are recognised and acted upon, as a matter of strategic and financial imperative, are set out in this part of the strategy. Perhaps one the of most relevant actions for corporates and financial institutions is the Government setting out its expectation for all listed companies and large asset owners to disclose, in line with the TCFD recommendations, by 2022.

Apart from this, the Government is carrying out the following actions which will work to green the finance sector:

• Establishing a joint taskforce with UK regulators, chaired by Government, which will examine the most effective way to approach disclosure, including exploring the appropriateness of mandatory reporting;
• Supporting quality disclosures through data and guidance, such as those being prepared for occupational pensions schemes by a new Government and regulator sponsored working group;
• Clarifying responsibilities for the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) and the Financial Policy Committee to have in regard to the Paris Agreement when carrying out their duties, and include climate-related financial issues in the UK Government’s allocation letter to The Pensions Regulator;
• Working with industry and the British Standards Institution to develop a set of Sustainable Finance Standards, and chairing a new International Organisation for Standardisation (ISO) Technical Committee on Sustainable Finance;
• Working with the FCA and Bank of England, including through the Fair and Effective Markets Review, to consider steps that can be taken to understand the potential or actual barriers to the growth and effectiveness of green finance markets; and
• Working with international partners to catalyse market-led action on enhancing nature-related financial disclosures. This will complement the recently announced global review of the economics of biodiversity by Professor Sir Partha Dasgupta.

Financing Green

This section of the strategy aims to ‘accelerate finance to support the delivery of the UK’s carbon targets and clean growth, resilience and environmental ambitions, as well as international objectives.’ This part of the strategy sets out specific actions to mobilise and accelerate flows of private finance into key clean growth and environmental sectors in the UK and abroad. The Government has mobilised green investments abroad for a number of years. Within the UK, the Government is taking the following actions:

• Announcing a package of measures to mobilise green finance for home energy efficiency;
• Using the forthcoming Environment Bill to place the 25 Year Environment Plan on a statutory footing;
• Determining the steps necessary for landlords and businesses to understand and potentially disclose operational energy use;
• Strengthening engagement with local actors to accelerate green finance across the country;
• Working with the GFI to address market barriers to greater and more rapid deployment of green capital into priority sectors; and
• The National Infrastructure Commission examining the resilience of the UK’s infrastructure to consider what action Government should take to ensure it is resilient to future changes, such as climate change.

Capturing the opportunity

This part of the strategy aims to ‘ensure the UK financial services capture the domestic and international commercial opportunities arising from the ‘greening of finance’, such as climate related data and analytics, and from ‘financing green’, such as new green financial products and services.’ To this end, the Government is aim is taking the following actions:

• Launching the GFI to strengthen public and private sector collaboration and cement the UK’s position as a global hub for green finance;
• Enhancing climate-related and environmental data and analytics and promoting dialogue with regulators and industry to support innovation
• Promoting the adoption and mainstreaming of green finance products and services, including through the launch of a Green Home Finance Fund making £5 million of funding available to the private sector to pilot products such as green mortgages; and
• Engaging with professional bodies to drive green finance competencies – notably through the launch of a Green Finance Education Charter – upskilling the UK’s diplomatic networks and building capacity on green finance across the public sector.

Public and private collaboration needed to solve the climate crisis

In the week which saw the London Stock Exchange re-classify a group of oil and gas producers as ‘non-renewable’ energy, and over 200 climate-related events, the UK Government has demonstrated its commitment to harnessing the power of the private sector to help solve the climate crisis. Highlighted time and again in the strategy was the need for collaborative efforts across the public and private sector – this challenge is insurmountable without the private sector. While it is safe to say many in the finance sector are stepping into this new role, it remains to be seen how well the wider UK finance sector will respond, and if it will be quick enough.