The Green Finance Strategy: All talk and no action?
Today the UK Government has published its 2030 Strategic Framework for international climate and nature action and Green Finance Strategy. A much anticipated update (the last being in 2019) which those of us in the Sustainable Finance community have been waiting for in the hope of gaining more clarity on key environmental, social, governance (ESG) commitments and (most importantly) actions. Unfortunately, the Strategy does excel at the former and provides a long list of commitments and commitments to have consultations, and commitments to commit to commitments... but it does lack much information around action.
Somewhat confusing considering the definition of a strategy is a plan of action designed to achieve a long-term or overall aim.
However, not all is lost.
Some key takeaways from the strategy include a focus on the topics of climate (including carbon reduction), nature (a nice surprise to see this finally make the spotlight), and upcoming regulations / frameworks such as the UK Green Finance Taxonomy, transition plans, and reporting requirements. To save you the hassle of reading it all, I've written a couple of short summaries against each topic:
Climate and Carbon
According to the Strategy, the UK is aiming to become the world's first net zero financial centre. This follows our commitment to become net zero by 2050 and showing the world "we mean business". This statement comes with mixed feelings: One of hope that we have made such a bold and ambitious statement, but then one of uncertainty and pessimism that action is still very much in the 'pending' stage. The latter was also echoed by the Climate Change Committee (CCC)'s report earlier this week which stated that policies in the UK still aren't up to scratch in supporting the adaptation needs of our infrastructure in the face of climate change. According to the Strategy released today, the Government is working with the CCC to support research requirements and that we're not to expect any final conclusions to be published until 2027(!)
In more positive news, the Strategy does re-affirm the Government's commitment to end the sale of new petrol and diesel cars and vans by 2030. This was a sigh of relief for many following some rumbles of pushing this date back earlier this year. To put a bit of oomph behind this target, the Government has also announced a Zero Emission Vehicle (ZEV) mandate as of 2024 to ensure that car manufacturers meet annual targets to ensure total sales percentages account for ZEVs. A lovely £381 million fund has also been announced to support the planning and delivery of chargepoint infrastructure across local communities too.
Lastly, there's a whole load of information related to plans to encourage 'greener jobs' and an update to the Environmental Reporting Guidelines to include more guidance on Scope 3 emissions to encourage more companies to better understand their 'indirect emissions' and to report these publicly and transparently.
Nature
My main thought here is that (in the words of Lizzo) "it's about damn time" nature was included in equal measure as other topics have been for years. Nature so often gets missed from these kinds of strategies and we often fail to really communicate that we are in a climate and ecological crisis - both intertwining with one another and both requiring just as much attention.
The strategy sets out a target to raise at least £500 million in private finance to support nature’s recovery every year by 2027 in England*, rising to more than £1 billion per year by 2030. This is a nice follow on from December's UN Biodiversity COP which saw countries across the world agree on new measures to halt nature loss. To further inform this topic, the UK's first ever Nature Markets Framework has been published which includes several principles to support investments in ecosystem services. It is expected that further standards are to be developed to also support how businesses and the investment community assess, manage, and report nature considerations (date TBC).
*I've not seen any information beyond the mention of England, so please let me know if I've missed something here
Transition Plans
After much momentum has grown around this topic from the work of the Transition Plan Taskforce (TPT), the Government has committed to consult on the introduction of requirements for the UK's largest companies to disclose their climate transition plans. This is likely to be on a “comply or explain” basis.
As a reminder, the UK initially committed to mandatory disclosures of transition plans for financial institutions and listed companies during the COP26 conference in 2021, and then in November, the TPT published its framework, with the implementation plan expected later this year. This latest update implies the commitment could also extend to large companies which would reflect the movement we've seen from the Task Force on Climate-related Financial Disclosures (TCFD). The consultation on transition plans is expected to happen towards the end of 2023.
Green Taxonomy
Today's strategy finally provides some updates on the long-awaited Green Taxonomy which was first launched back in 2020 as a way to provide a common framework for determining which activities can be defined as sustainable and, most importantly, to improve the impact of company activities and investments. Essentially, if you know about the EU Taxonomy, expect something very similar. Again, if you know about the EU Taxonomy, expect there to be lots of delays with the development of the criteria which companies will need to follow...
The regulation was supposed to have been passed into law last year, but was delayed until at least later this year. The strategy doesn't give us much more hope about this coming into force, but does tell us that a consultation on these plans are expected in the Autumn of this year.
Once it does (yes I'm remaining hopeful by saying once, and not if) become enforced we can expect companies to report against it on a voluntary basis at first (the understanding is that this will be for the first 2 years), and then thereafter it may be mandated.
Sustainability Reporting
If you've not yet had enough of me talking about commitments to consultations, then you'll enjoy this next part, as yes another consultation has been announced - this time related to ESG rating providers. The Strategy has stated that there will be a consultation into regulating ESG ratings providers. There's also mention of the desire to assess the upcoming International Sustainability Standards Board (ISSB)'s reporting standards due to be published later this year. I'm remaining hopeful that the UK (and other G7 countries at least) will adopt this.
There's quite a bit of emphasis within the Strategy that transparency of sustainability reporting is key to helping investors understand more about sustainability risks, opportunities, and the decisions they can make to support the net zero transition. With the huge success of the TCFD, I do hold out hope that the UK does still have something more to offer when it comes to supporting companies and investors with sustainability reporting. With the EU Sustainable Finance Disclosure Regulation (SFDR) causing absolute chaos with it's lack of clarity on what funds can and cannot classify as, surely the UK can improve on this? I guess we'll find out more when the UK's Sustainable Disclosure Requirements (SDR) are finalised in July this year.
My Final Thoughts...
Overall, it's nice to see the Green Finance Strategy launch and I'm excited to see my LinkedIn networks give their opinions on the Strategy and what it really means. Let's face it, once the Strategy has been mentioned on the 6 o'clock news tonight, we're probably never going to hear about it in the mainstream media again. Something which certainly needs to change.
Despite much of the Strategy emphasising the importance of climate and nature-related action, we (yet again) don't get much solidification in understanding what the UK intends to actually do, beyond commit to consultation after consultation. It's nice to see the Government commit to various pots of sustainable funding, but it's just not clear enough how this will be spent and whether it will be apportioned fairly across local authorities who are already struggling to make ends meet.
At a time when UK companies are already being asked to provide information for or to align to non-UK regulations from the likes of EU investors needing to respond to the Taxonomy and the SFDR, it does feel somewhat hypocritical to launch a strategy which strives for companies to be bold, to take action, and to be more transparent about sustainability... whilst the UK's Green Finance Strategy itself fails to be robust, transparent, or definitive in its intended actions.
Fingers crossed these commitments are only the start and we actually see some much needed action, policy-changes, and reporting guidance taking effect.