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Update on the UK Greening Finance roadmap

Insight 29 October 2021

Update on the UK Greening Finance roadmap

On Monday, 18 October 2021, the UK Government issued a policy paper on its approach to sustainable investing. This briefing note summarises the UK's roadmap.

On Monday, 18 October 2021, the UK Government issued a policy paper on its approach to sustainable investing. The release coincides with the upcoming COP26, which is presided by the UK. This new framework is the latest in a series of initiatives around the EU [1], Channel Islands [2], Hong-Kong [3], Singapore [4] and Japan [5]. The UK’s framework is expected to build on the Task Force on Climate-Related Financial Disclosures (“TCFD”) and leverage some of the current EU Taxonomy rules to create the UK’s Sustainability Disclosure Requirements (“SDR”).

Sustainability Disclosure Requirements:

The SDR will focus on three key areas:

  • Corporate disclosures: The UK is expected to endorse standards developed by the International Sustainability Standards Board (“ISSB”). The Government is expecting a consultation to be issued by the ISSB in early 2022.
  • Asset manager and asset owner
  • Investment product disclosures: Creation of a new sustainable investment labelling regime.

The Green Taxonomy

Much like its EU Taxonomy counterpart, the UK Green Taxonomy objectives are:

Three tests will need to be met to achieve Green Taxonomy compliance, to each of the six objectives.

  1. Makes a substantial contribution
  2. Does no significant harm
  3. Meet a set of minimum safeguards

Technical Screening Criteria (“TSC”)

The TSCs are expected, for the climate change mitigation and climate change adaptation, to be based on the EU TSCs which the UK Government helped design whilst being an EU Member State.

  • The UK Government will issue a consultation on draft TSCs for change mitigation and climate change adaptation in Q1 2022.
  • The remaining four criteria’s draft TSCs are expected to be consulted on in Q1 2023.

Looking ahead

The Roadmap has two timetables which, are summarised below:

Scope

Requirements in place by 2022

UK-registered companies, inc. relevant financial services firms (banks and insurance companies)

TCFD for certain financial companies
(subject to Parliamentary approval)

Consultation on SDR Framework for companies

UK-listed companies

TCFD for premium-listed issuers

TCFD for certain standard-listed issuers

Plan for implementing new requirements after Royal Assent of primary legislation:

+1-2 years

+2-3 years

+ 3 years

Mandatory disclosure requirements in Annual Reports incorporating UK Green Taxonomy and ISSB issued standards for most economically significant companies. Voluntary disclosure for other companies

Consultation on mandatory disclosure requirements in Annual Reports incorporating UK Green Taxonomy and ISSB issued standards

Mandatory disclosure requirements in Annual Reports incorporating Taxonomy and ISSB-issued standards for other companies subject to consultation

-

Scope

Requirements in place by 2022

Asset managers, life insurers providing investment products and FCA-regulated pension schemes

TCFD via FCA Rules

Discussion paper on SDR disclosures
to be launched in November 2021

Occupational pension schemes

TCFD via DWP regulations

Plan for implementing new requirements after Royal Assent of primary legislation:

+1-2 years

+2-3 years

+ 3 years

Consultation on potential mandatory sustainability-related disclosures

Subject to 2022 consultation, potential mandatory sustainability-related disclosures

Mandatory disclosure requirements incorporating taxonomy disclosures to be presented in a sustainability report referenced within the annual report.

For: funds ≥ £5 Bn

For: funds ≥ £1 Bn

Scope

Requirements in place by 2022

Investment products

TCFD via FCA rules

Discussion paper on consumer-facing product-level SDR disclosures in November 2021

Sustainable investment labels

Discussion paper seeking feedback on the sustainable investment labelling regime in November 2021

Plan for implementing new requirements after Royal Assent of primary legislation:

+1-2 years

+2-3 years

+ 3 years

Consultation on potential mandatory consumer-facing and more detailed product level sustainability-related disclosure

Subject to consultation in 2022, potential mandatory consumer-facing and more detailed product-level sustainability-related disclosures

Consultation on potential mandatory sustainability related labels for investment products

Subject to consultation, potential mandatory sustainable product labels for investment products

-

Scope

Requirements in place by 2022

Financial advisors

Plan for implementing new requirements after Royal Assent of primary legislation:

Subject to consultation, potential requirements including on how sustainability matters are taken into account in investment advice.

Convergence? Divergence?

Although the UK has aligned several of its key Green Financing framework on the EU’s ESG rulebook, this is not an indication of a definite trend. The next few weeks and months will determine if and to what extend the UK is diverging from the EU’s ESG rules.

How can Sanne help?

We offer access to ESG advisory experts and an online ESG reporting platform specifically designed to meet the needs of alternative investment funds. Click here to find out more about our ESG offering.

For more information, please reach out to Karlien, Chris or Paul directly.

Let's talk...

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Karlien De Bruin Global Head of ESG - South Africa
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Chris Warnes Head of Sanne United Kingdom - United Kingdom
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Paul Séjournant Associate Director, Product Development - United Kingdom
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[1] SFDR, EU Taxonomy

[2] Updates of the Jersey Private Fund Guide and the Guernsey Green Fund Rules

[3] Green and Sustainable Finance Grant Schemes, Management and disclosure of climate-related risks by fund managers

[4] Guidelines on environment risk management

[5] Mandatory disclosures for companies listed on the Tokyo Stock Exchange prime market

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