Responses to Treasury Committee

On 15 July the House of Commons Treasury Committee published its report: "Net Zero and the Future of Green Finance: Responses to the Committee’s Thirteenth Report of Session 2019-21 (HC 576)" (the "Net Zero Report").

The Net Zero Report highlighted some new developments in relation to the UK's sustainable finance roadmap – giving an indication of incoming regulatory developments.

The key takeaways are:

1. The UKs policy approach appears to create a clear distinction between the wider concept of "ESG" or "sustainability" and the narrower "climate" related issues. Whilst recent FCA consultation papers (CP21/17 and CP21/18) and have focussed on climate-related TCFD disclosures, the FCA indicate that wider disclosures in relation to other environmental issues (such as biodiversity) and social issues will be implemented in the future.
2. The results of the FCA's consumer behavioural research is that clear, objective fund labels are an important driver of consumer choice and that climate- or carbon-based labels are likely to be introduced in the future.
3. The Government confirm that the UK's Green Taxonomy will "take the EU’s Taxonomy as a starting point for the UK version". This is good news for firms which will also be subject to the EU regulation, as it means that there should be data coalescence in relation to this.
4. The Net Zero Report also sheds further light on the Sustainability Disclosure Requirements ("SDR") announced during the Chancellor's Mansion House Speech on 1 July 2021. The Net Zero Report confirms that the UK intends to introduce sustainability disclosures which apply across corporates, financial services firms and pensions schemes. The SDR will mandate disclosures in relation to climate, but also in relation broader sustainability factors. Importantly, the SDR will incorporate TCFD disclosures but it is intended to be wider in scope. For example, it will include disclosures under the UK green taxonomy which will provide firms and investors a common definition for environmentally sustainable economic activities.
5. The Net Zero Report also confirms the rumours that the Government will publish its Green Finance Roadmap ahead of COP26 in October.

The Net Zero Report provides some further clarity on the direction of the UK's regulatory approach to ESG and the transition to net zero. We expect to receive a much clearer picture of the regulatory future with the publication of the Green Finance Roadmap, likely towards the end of Q2.