20 Oct 2021 3 min read

The UK’s new roadmap for sustainable investing

By Alexander Burr

We reflect on the newly released Roadmap to Sustainable Investing in the UK.

 

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Building on the 2019 Green Finance Strategy, the Chancellor of the Exchequer has unveiled a new ‘Roadmap to Sustainable Investing’ in the UK. The Roadmap provides a broad overview of the green finance policy framework, including details of a new economy-wide sustainable disclosure regime, the UK Green Taxonomy and Stewardship activities.

We believe this is a very positive move to bring clarity and comparability to responsible investing in the UK and help the drive to accelerate the transition to a net-zero economy.

The ‘Sustainability Disclosure Requirements’ (SDR) regime in the UK will be economy-wide. It will create a single and integrated framework for sustainability disclosure regulations that span the entire investment chain – i.e. corporates, financial services (including at the product level), and pension schemes. It will require sustainability disclosures through the four pillars of the TCFD framework (Strategy, Governance, Risk Management, and Metrics and Targets) but also expanded requirements to include disclosure on credible net-zero transition plans.

In our view, the Treasury’s announcement of the Roadmap demonstrates the government is responding to concerns on sustainability data gaps, including from corporates (the area we see as foundational to the entire system).

Pulling together the proliferating – and potentially confusing – voluntary corporate disclosure standards is a major step forward.

The Roadmap also recognises what LGIM has been pushing for: corporate disclosures to be both material to investors and with regard to the impact on the broader environment (referred to as ‘double materiality’). This is now embraced by the G7 too.

As noted, the SDR will not stop at corporates; it will cover sustainability disclosures across the entire investment chain, including asset managers (and their investment products) and pension schemes, similar to the EU’s SFDR (albeit with improvements, in our view).

The SDR hasn’t started from nowhere in this regard, as it will build on existing work, such as the FCA’s Guiding principles on design, delivery and disclosure of ESG and sustainable investment funds and the requirement to disclose in line with TCFD. Alongside this, the FCA is developing a sustainable investment labelling system for investment products.

Another important aspect of the Roadmap is its clear attempt to align itself with ESG policy and regulation beyond UK borders. One key area is that the SDR framework will ensure there is a mechanism to adopt and integrate the standards developed by the International Sustainability Standards Board (led by the IFRS Foundation and expected to be formally approved at COP26 in November).

To touch briefly on the other green finance elements included in the Roadmap, we note:

a) The development of the UK Green Taxonomy will reflect and build on the EU approach (e.g. the inclusion of ‘Enabling Activities’ and ensuring it is strictly science-based).

b) Reporting against the Taxonomy will form part of the SDR.

c) Asset managers and owners will need to strengthen their stewardship activities across all markets and asset classes. SDR disclosures should help in this regard. The government also noted its support for the recommendations of the Asset Management Taskforce and highlighted that the Financial Reporting Council will start to tier signatories to the Stewardship Code to rate the quality of activities.

d) The government is heavily engaging internationally to encourage a much stronger uptake of green finance policies in other markets.  

Further details on the priorities included in the Roadmap will come out over the coming months. LGIM looks forward to engaging with policymakers on these, but in short we very much welcome what the government has released.

Alexander Burr

Global ESG Public Policy Analyst

Alexander joined the team in September 2019 to focus on strengthening LGIM’s public policy engagements across jurisdictions. Prior to this, Alexander spent three years leading international government and institutional relations for a firm that uses alternative finance to invest in sustainable projects in emerging markets. Before that, he spent five years negotiating investments in emerging markets with the European Commission and international climate change funds at the European Bank for Reconstruction and Development (EBRD). He also spent time advising middle and low-income governments on alternative finance and jointly establishing a nuclear energy safeguards organisation. Alexander holds a BSc in Politics and International Relations from the University of Southampton.

Alexander Burr