On 30 March 2023, the UK Government published an update to its 2019 Green Finance Strategy, following a consultation in the summer of 2022. While many of the measures announced were not new, they provided much-needed clarity on the future direction of travel of the UK’s sustainable finance regulatory framework.

The Strategy focuses on “mobilising green investment” and emphasizes the potential for growth by transitioning to more environmentally-friendly operations – a notable shift in tone since 2019. The Strategy suggests that supplying the goods and services needed to achieve global net-zero goals could bring in a staggering £1 trillion in revenue for UK businesses by 2030.

 

Sustainability disclosure needed to stay on track

In addition to raising finance, the Strategy confirms the Government’s commitment to the Sustainable Disclosure Requirements, noting that further detail will be set out in the Summer.

The Strategy also emphasized its support for the International Sustainability Standards Board’s (ISSB) frameworks and committed to establishing two advisory committees on integrated sustainability reporting in line with the ISSB’s after they are finalised in June 2023.

Recognising that Scope 3 emissions can account for between 80-95% of an organisation’s total footprint, the Government pledged to revise its Environmental Reporting Guidelines, which is a voluntary framework for companies, to provide more guidance on how to collect and report data on Scope 3 emissions. The Government also committed to developing a framework for embodied emissions reporting, which may include emissions related to raw material extraction and processing, fuel combustion, process emissions, and end-of-life emissions.

 

The importance of SMEs to decarbonise the economy

It is very welcome to see the Government’s focus on supporting SMEs to set meaningful net zero targets and reduce their GHG emissions. Recognising that simplifying the data collection process is key to achieving this is a step in the right direction. The Strategy has recognised Perseus, led by Bankers for Net Zero and Icebreaker One to unlock access to capital by automating GHG reporting for every SME in the country, as a crucial part of the decarbonisation architecture required to ensure the UK reaches its emissions reduction targets.

 

Update to the UK Green Taxonomy

To aid with labelling and reporting, the UK Green Taxonomy will be subject to consultation in Autumn 2023. Once finalised, the Government will initially require companies to report voluntarily against the taxonomy for a minimum of two reporting years before considering the implementation of mandatory disclosure regulations.

 

Progress continues to be made on transition plans

The Government will consult on a fresh mandate for the largest companies in the UK, both publicly and privately listed to divulge their climate transition plans. These plans will outline how the companies intend to reduce their carbon emissions as the UK strives to achieve a net zero economy by 2050. The Government aims to align these new regulations with the mandatory requirements in the Financial Conduct Authority’s (FCA) Listing Rules, and companies will need to comply or provide a reasonable explanation for non-compliance. The Transition Plan Taskforce is expected to finalize the disclosure framework for transition plans by the Summer of 2023.

 

What businesses can do to prepare

Businesses can already start preparing for the new upcoming requirements and regulations. Firms should start taking action by:

  • Engaging with Perseus to ensure that their needs are directly addressed in implementation.
  • Considering how the new reporting initiatives affect their ESG programmes to flexibly adapt to them as the regulations develop.
  • Studying the best ways to disclosure based on the draft Transition Task Taskforce (TPT) Framework published in November 2022 as well as thinking about how to incorporate transition planning across their businesses and reporting processes.
  • Examining how to implement the draft TNFD Framework within their organisation.
  • Considering aligning their investments with the EU Taxonomy

 

Focus turns to delivery

The Strategy highlights the significance of private investment and capital for achieving net zero emissions, enhancing climate resilience, and promoting the restoration of natural ecosystems. The Government is then working with Bankers for NetZero’s Perseus programme to automate SME sustainability reporting on a national scale, with an operational pilot by COP28. Engaging in Perseus is a unique opportunity to contribute to the creation of assurable ESG data. Overall, the Strategy contains many welcome steps and the focus now turns to delivering these promises, with more policy clarity expected in the upcoming consultations.

 

Contact

Elena Pérez Celis,

Head of Policy & Public Affairs

E: elena.perezcelis@bankersfornetzero.co.uk

T: 07522124532