The UK Government announced today a commitment to consult on the introduction of requirements for the country’s largest companies to disclose their climate transition plans, likely on a “comply or explain” basis.
The commitment was announced today with the introduction of an updated Green Finance Strategy by Chancellor of the Exchequer Jeremy Hunt, part of the government’s launch today of its “Powering Up Britain” plan outlining initiatives to achieve the UK’s energy security and net zero objectives. The original Green Finance Strategy was launched in 2019, aimed at establishing the UK as a center for international green finance, and aligning the financial sector and capital flows with the delivery of global and domestic climate and environmental objectives.
“By unlocking billions of pounds of private capital through our Green Finance Strategy, we generate more of the energy we need in Britain and create new industries and jobs that are built to last.”
The UK initially committed to introduce mandatory disclosure of transition plans from financial institutions and listed companies during the COP26 conference in 2021, and formed a Transition Plan Taskforce (TPT), composed of industry and academic leaders, regulators, and civil society groups, to develop a “gold standard” for transition plans, in order to guard against greenwashing, co-chaired by HM Treasury and insurance company Aviva.
The TPT launched its framework in November 2022, and is expected to publish it and its implementation guidance for transition plans in the summer of 2023. Following the anticipated publication, the government committed to consult on the introduction of requirements for climate transition plan disclosure in late 2023.
The updated Green Finance Strategy also included an update on the UK’s plans to introduce a Green Taxonomy. The initiative to develop a green taxonomy was launched in 2020 by then-Chancellor Rishi Sunak, in order to provide a common framework for determining which activities can be defined as environmentally sustainable, and to improve understanding of the impact of firms’ activities and investments on the environment while supporting the transition to a sustainable economy.
The regulation was initially planned to be passed into law in late 2022, but had been delayed until at least later this year. The updated strategy indicated that the government now plans to consult on the Taxonomy in Autumn 2023, and once finalized expects companies to report against it on a voluntary basis for at least two years, after which mandatory requirements will be explored.
Other aspects of the strategy revealed today include the launch of a consultation into regulating ESG ratings providers, a pledge to assess the upcoming ISSB sustainability reporting standards as soon as they are published later this year, and plans to explore the costs and benefits of Scope 3 greenhouse gas emissions reporting.
While welcoming some aspects of the updated strategy, sustainability-focused investment groups criticized it for not going further or faster to scale climate-related transparency for investors. In a statement following the release of the strategy, Lewis Johnson, Director of Policy for NGO ShareAction said that the announcement “amounts to little more than a restatement of existing commitments.”
“The strategy is right to say that reliable, transparent information is vital to align the financial sector with the UK’s climate commitments. However, the headline announcement on transparency is merely a commitment to ‘consult on the introduction of requirements for the UK’s biggest companies to publish their transition plans if they have them. What’s more, the consultation will assume such requirements may reflect the existing ‘comply or explain’ basis used by the FCA. This is not enough – we need robust, mandatory net-zero transition plans now so market participants can accurately assess performance and risk.”