How will the UK Green Finance Roadmap impact your business? How will the UK Green Finance Roadmap impact your business?

The science is clear. So is the economics. Attaining net zero emissions worldwide requires a revolution, not an evolution. While the plethora of documents released by UK Government over the last four weeks is positive, for the most part, the policy announcements have signalled a continued evolution in the steady march towards decarbonisation, despite their good intentions. Among others, key issue-specific announcements included:

• The Heat and Building Strategy, which indicated a continued roll out of some 30k heat pumps per annum. This is a welcome step forward and a key element of the Government’s overall plan for reaching net zero. However, several policy gaps have not been closed, and both greater business and community engagement and access to funding are needed to meet the decarbonisation targets; and
• The UK Government’s 2035 target to complete the transition to zero emission vehicles, which while ambitious, falls short of the 2032 deadline set by CCC. This combined with continued uncertainty over the rollout of charging infrastructure represents a significant barrier to achieving the goal;
• The government’s launch of the Net Zero Strategy in October represents the start of the realisation of long-term ambition of establishing the UK as the leader in net zero.

Amidst this steady drumbeat, there was a beacon of light in revolutions terms in the Greening Finance: A Roadmap to Sustainable Investing, released on 18^th October 2021 (UKGFR). The purpose of the UKGFR is to set out the government’s long-term ambition for the UK to establish itself as the world’s first net zero aligned financial centre. The UKGFR introduces the regulatory standards which organisations across the economy will have to meet, including through a new Sustainable Disclosure Requirements (SDR) and the Green Taxonomy, and alignment with international standards. This will happen in three phases over the next 3-4 years:

1. Informing – ensuring decision-useful information on sustainability is available to financial market decision-makers
2. Acting – mainstreaming this information into business and financial decisions
3. Shifting – financial flows across the economy to align with a net-zero and nature-positive economy

The implications of the UKGFR are set to be considerable for businesses. As one Group Financial Controller said to us :

“It reads as though I need to have a fully costed Transition Plan to Net Zero, reporting out on ‘green’ revenues, capex and opex, and linking this to back-half financial disclosures…”.

We agree. This is exactly the direction of travel across the economy and now is the time to act if we are to achieve net zero goal by 2050.

The new SDR brings together existing sustainability-related disclosure requirements into one integrated framework, building on the TCFD framework pillars and metrics and extending it across the economy. The requirements aim to create a clear and direct link from investors, through the financial system to their investments so they can understand their environmental impact and help facilitate a robust ESG market. The SDR also means organisations will now need to produce and disclose their net zero transition plans. As standards for transition plans emerge from government and regulators, they are likely to be incorporated into the SDR to ensure the UK remains a global leader in sustainability disclosures.

This is complemented with the launch of the UK Green Taxonomy. The Taxonomy will act as a mechanism to recognise green, or ‘environmentally sustainable’, economic activities that make a substantial contribution to at least one of the net zero climate and environmental objectives. It builds on the existing EU Green Taxonomy which many organisations have started to embed across their business already. The Taxonomy will be a form of environmental impact assessment and requires disclosure of the division of green/brown revenues and investments.

The UK’s standards will not sit alone. The government is monitoring the outcome of the International Sustainability Standards Board (ISSB) to ensure UK regulation is consistent with global sustainability-related disclosure standards. This is essential to provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.

Both environmental and sustainability strategy and targets now must be measurable and reportable. Climate and environmental sustainability must be fully embedded across strategy, risk and operations to ensure your organisation is ready for the seismic shift in disclosure requirements. Having a robust TCFD disclosure will enable a smoother transition and a great learning platform from which to prepare for the UKGFR, whilst the detail of the new regulations comes online and evolves.   

It is now time to build on the pillars of the TCFD and take a deep dive approach into your existing plans to assess if they align with the new requirements of the SDR, Green Taxonomy and beyond. By working now to upskill teams to implement these new requirements, you can maximise the benefit to your organisation by reducing the transition risk whilst also meeting the needs of the planet.