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한국어 Following the successful launch of IFRS S1 and S2, the U.K. has also introduced plans to introduce its own Sustainability Disclosure Standards (SDS). In a recent statement released by the Department for Business and Trade (DBT), the standards will aim to be the basis for any future sustainability reporting legislation or regulation in the U.K.
ISSB, launched back in November 2021 at the COP26 climate conference, was set up with the wider goal of establishing the IFRS Sustainability Disclosure Standards. The demand driven by investors, companies, governments, and regulators to provide a global baseline of disclosure requirements has been received positively as the standards provide more clarity on the understanding of sustainability-related risks and opportunities and act as a base for other countries to build their own disclosure standards out from. [1]
Background
The UK is among several countries including Singapore, South Africa, and Japan, to consider endorsing the global standards by IFRS, however, it is expected that the U.K. government may modify the IFRS Standards to suit local needs. Moreover, the U.K. is an early adopter of mandatory climate disclosures for listed companies, based on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations which also carries influence on the general structure of the ISSB Standards. In its Mobilising Green Investment: 2023 Green Finance Strategy, the U.K. government has also laid plans to establish a framework to assess the suitability for the creation of UKs first SDS. [2]
Significance of 2023 Green Finance Strategy
The UK government’s updated Green Finance Strategy, Mobilising Green Investment was released on March 30, 2023. Developed by multiple departments, including HM Treasury and the Department for Energy Security and Net Zero. The strategy aims to strengthen the UK’s leadership in green finance and acts as a key pillar in supporting the development of the UK’s first SDS. Within the Strategy there are five key objectives, including supporting the financial sector in a transitioning global economy, ensuring capital for green investments, addressing climate and nature risks, and aligning financial flows with climate and nature goals, all of which carry significance to supporting the eventual application of a set of SDS.
The strategy introduces plans for “transition finance,” encouraging investments in higher-emitting companies working to decarbonize. A U.K. Green Taxonomy consultation is slated for Q3 2023, which will consider including nuclear energy. The regulation of Environmental, Social, and Governance (ESG) ratings providers is being discussed, with a consultation running until June 30, 2023.
Mandatory sustainability disclosure requirements are now in place for certain companies, pension schemes, and FCA-regulated firms. Additionally, the strategy outlines steps for implementing these requirements, including transition plans, IFRS Sustainability Disclosure Standards, support for emission reporting, and fund labels.
Concerning Scope 3 emissions, a call for evidence is expected in Q3 2023 to understand the feasibility of disclosing such emissions for large companies. The strategy also focuses on pension trustees’ duties and explores potential securitization of green investments.
Key dates include various consultations, assessments, and engagements throughout 2023 and 2024, including net zero investment roadmaps, consultation on the U.K.’s Green Taxonomy, disclosure requirements for large companies, and more. The strategy aims to consolidate efforts over the years, enhancing clarity and support for green finance initiatives. [3]
It’s important to note that while the strategy represents a continuation of previous initiatives, it reinforces the U.K.’s commitment to green finance and investment, highlighting the government’s role in shaping the transition toward a more sustainable economy.
Aligning and Investing
Within the Green Finance Strategy also exist two pillars which focus on aligning the financial markets with U.K. and global climate targets and investing, which encourages the growth of green investments. A green investment is typically a sub-set of a broader investment theme related to conscious approaches related to Sustainable Responsible Investments (SRI). [4]
Under the ‘Align’ pillar, the strategy proposes measures to enhance transparency regarding sustainability information for companies and financial market participants. The U.K. Financial Conduct Authority (FCA) has already introduced environmental disclosure rules for various entities, including listed issuers and regulated firms. Additionally, the Companies (Climate-related Financial Disclosure) Regulations 2022 mandate certain companies to disclose climate-related governance, strategy, risk management, and targets. [5]
The U.K. Government plans to further implement Sustainability Disclosure Requirements, including the use of Sustainability Disclosure Standards from the IFRS. Tools like a U.K. Green Taxonomy, regulatory oversight of environmental, social, and governance ratings providers, and potential FCA rules on sustainability in investment advice are being considered to also help in the process of drafting the SDS. The strategy also aims to improve channels connecting climate-focused projects with finance and evaluate pension trustees’ fiduciary duty in considering non-financial factors.
Meanwhile, the ‘Invest’ pillar focuses on making the U.K. a global hub for raising “transition capital” to support high-emission companies’ shift towards green initiatives. This involves exploring transition-focused capital raising methods, such as sustainability-linked debt and transition bonds. The U.K. Government is taking steps to encourage investment in net-zero sectors and technologies and plans to extend the U.K. Emissions Trading Scheme while promoting the integrity of voluntary carbon markets. Various funding schemes and blended finance approaches have been developed to direct investment into green projects. [5]
Throughout 2023, the U.K. Government has committed to engaging with industry and stakeholders to refine and implement various aspects of the strategy, including consulting on the U.K. Green Taxonomy, clarifying fiduciary duty considerations, and assessing IFRS Sustainability Disclosure Standards. Moreover, the UK government is firmly committed to achieving net zero by 2050. With a firm eye on sustainable industry collaboration, the Green Finance strategy helps reaffirm the U.K.’s role in shaping a greener financial landscape with the potential rollout of its first SDS.
Sources
https://www.esgtoday.com/uk-to-create-ifrs-based-sustainability-disclosure-standards/
https://www.gov.uk/guidance/uk-sustainability-disclosure-standards
https://www.oecd.org/finance/WP_24_Defining_and_Measuring_Green_Investments.pdf
https://www.jdsupra.com/legalnews/uk-government-publishes-2023-green-1675154/
