Smart regulation is critical for greening finance


Responding to the publication today of the government’s new strategy Greening Finance: A Roadmap to Sustainable Investing, Josie Murdoch, Senior Policy Officer at the Aldersgate Group, said: “We welcome the government’s plans for greening the financial sector and embedding climate and the environment into decision-making for financial institutions and corporates, as well as into investment products.[1] Three elements of the new Roadmap are particularly welcome. Firstly, the plan to integrate different disclosure frameworks within the Sustainability Disclosure Requirements (SDR) integrated framework, which will be based on the Taskforce for Climate-Related Financial Disclosures (TCFD) framework. This will reduce reporting burden for businesses. Secondly, the SDR requirement for firms to publish transition plans that align with the government’s net zero commitment, on a comply or explain basis. Thirdly, requiring companies to disclose which proportion of their activities are aligned with the new UK Green Taxonomy will help to prevent greenwashing.”

Josie Murdoch added: “Looking ahead, the government must ensure that the UK SDR and its taxonomy are aligned with other international frameworks, such as the EU’s Sustainable Finance Disclosure Regulation (SFDR). This will simplify the reporting process and ensure that businesses operating in several jurisdictions are not subject to multiple reporting requirements that may be incompatible. A timeline setting out when the different elements of this new regulation will be introduced would also help businesses prepare for these new reporting standards. Finally, a further commitment on requirements for businesses to publish net zero transition plans ahead of COP26 would be welcome. By making it mandatory for large businesses to publish plans on how they will ensure their operations and investments are aligned to the UK’s net zero target, government will send a clear signal on green finance and demonstrate leadership at the international level.”

[1] In June 2021, the Aldersgate Group called for stronger financial regulation to be introduced across the economy, in order to green the UK financial system. We argued that new regulation would ensure a level playing field, increase comparability of disclosures and reporting, and ultimately ensure that finance is being allocated as strategically as possible to deliver the UK’s climate goals.