The UK Government has published a roadmap to crackdown on greenwashing in the pensions and investments markets and help firms transition to a greener financial system.
Ahead of COP26, the roadmap, entitled ‘Greening Finance: A Roadmap to Sustainable Investing’ sets out new standards for environmental reporting. One of the key measures is a requirement for all firms offering financial products to make sustainability disclosures. This will comprise reporting under the proposed international standards and reporting of environmental impact using the UK Green Taxonomy.
Asset managers and asset owners, including occupational pension schemes, will need to disclose how they take sustainability into account, helping consumers to determine whether their assets are managed according to their sustainability preferences.
Investment products will also be expected to report on the products’ sustainability impact and relevant financial risks and opportunities.
There is also a new mandate for all firms to prove credibility with a requirement to substantiate any sustainability claims they make.
The Treasury says this will ensure investors have the information they need to make informed decisions about where to put their money.
The measures are being introduced following growing concern that greenwashing poses a significant challenge for investors.
The Treasury admitted that a lack of common definition around what constitutes environmental sustainability can make it difficult for companies and investors to clearly understand the environmental impact of their decisions and can lead to greenwashing.
“This risks limiting the flow of capital into sustainable investments and ultimately slowing the UK’s progress to tackle climate change and other environmental challenges,” the roadmap states.
To address this, the government is implementing the UK Green Taxonomy, which will clearly set out the criteria which specific economic activities must meet to be considered environmentally sustainable.
The Government has stated that eligible activities must meet one of six environmental objectives: climate change mitigation; climate change adaptation; the transition to a circular economy; sustainable use and protection of water and marine resources; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.
The Government said the roadmap was designed to call the pensions and investment sectors to action, shifting their financial flows to align with a net-zero, nature-positive economy.
Chancellor The Rt Hon Rishi Sunak said: “Ensuring the financial sector is equipped to play its part is vital. Aligning the financial systems with a sustainable future will bring real benefits for the environment and society.
“We are making significant progress. In November 2020, the UK became the first country in the world to commit to making climate-risk disclosures fully mandatory across the economy. In September 2021, the UK Government raised £10 billion for green projects through the sale of the first green gilt.
“But we should aim to go further. Investors and businesses must have the information they need to understand the full range of environmental risks they face and create. That information should be a key component of every investment decision and the strategy of every business.”
Sunak said the roadmap will put UK businesses in a better position to withstand climate-related risks and seize the opportunities presented by the transition to net zero, increasing the UK’s competitiveness as a global financial centre.
Jamie Jenkins, director of policy and external affairs at Royal London, says: “To tackle climate change we need supportive government policy, and the report is a bold but welcome step from the Treasury.
“The financial services sector has an important part to play and we know the biggest way Royal London can make a difference in the fight against climate change is through an active investment approach. We are engaging with the largest carbon emitters in our investment portfolio to influence their behaviours and to ensure they have ‘Just Transitions’ plans in place that consider the impact the changes will have on society.”