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How smart regulation holds key to establishing UK as net zero financial centre

Written by pgex7

How smart regulation holds key to establishing UK as net zero financial centre

New report from Aldersgate Group calls on government to give proposed Sustainability Disclosure Requirement framework ‘teeth’ so as to drive the development of net zero finance sector

Political leaders and regulators must deliver a new wave of ‘smart regulation’ if they are to accelerate the UK’s net zero transition and deliver on the government’s promise to establish the UK as the world’s first financial net zero-aligned centre.

That is the conclusion of a major new report released today by the Aldersgate Group of businesses, which responds to Chancellor Rishi Sunak’s COP26 pledge to decarbonise London’s financial centre. At the Glasgow Summit Sunak set out wide-ranging plans to require large listed businesses and financial institutions to publish more details information to help investors assess their exposure to climate-related risks, alongside new strategies showing how they aim to deliver net zero emissions. But the future of the proposals is currently uncertain, following reports that key aspects of the plan had been pulled from the recent Queen’s Speech, with Number 10 instead opting to focus its agenda on cost-of-living and traditionally Conservative issues.

However, following engagement with the financial, business, NGOs and the academic community, the Aldersgate Group has today published a major new report on the Treasury’s proposals calling on the government, the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA). ) to enact several new measures to facilitate the take-up of new disclosure and reporting requirements and maximize the effectiveness of the UK’s green finance regime.

The report calls for an accelerated implementation of the UK’s Net Zero Strategy, a renewed effort to design a future-proof, streamlined Sustainability Disclosure Requirements framework, and the provision of stronger and clearer guidance to businesses and financial institutions working to report on their climate risks and environmental performance.

“The UK Government has rightly committed to putting in place a reporting and disclosure framework on climate change that is world leading and science-based,” said Nick Molho, executive director of the Aldersgate Group, which represents a host of UK blue chips. “The key to making it a success is to support businesses and financial institutions through the provision of clear guidance, make new rules sufficiently compatible with other major global regimes such as the EU’s, and ensure that the framework encourages investors to engage with high-carbon to help them cut emissions businesses, rather than just divest.”

However, he also stressed that policymakers “must also remember that better reporting and disclosure cannot by itself deliver our climate targets and that clear policies under the Net Zero Strategy will be essential to incentivise low carbon investment across the economy”.

The report calls on the government to develop a streamlined Sustainability Disclosure Requirements framework that merges existing reporting and disclosure requirements together under a new regime to make reporting more comprehensive and simpler for companies. The new guidelines should be linked to making it mandatory for businesses to publish information on their material Scope 3 value chain emissions from 2025 onwards, the report said.

“The government now has the challenging task of giving the SDR its teeth,” said Alexander Burr, ESG policy lead at Legal & General Investment Management (LGIM). “The new regulations must be appropriate, robust and ambitious, as well as being accompanied by clear guidance and education for the entire market. As a long-term investor, committed to active ownership, we want to see the SDR being used as a lever to accelerate all parts of the economy towards the transition to net zero.”

The Aldersgate Group’s report stresses that the UK’s evolving green finance regime must work hand in hand with the rapid implementation of the government’s wider Net Zero Strategy. As such, a number of key policy gaps need to be “urgently tackled”, including in areas such as power, buildings, transport, heavy industry, and agriculture, the report said.

“Businesses have a key role in tackling climate change and large companies will soon have to publish credible plans on how they will cut their climate emissions to net-zero by 2050,” said Karen Ellis, chief economist at WWF, another Aldersgate Group member. “But the private sector can’t do it all by itself. Government must create an enabling environment for business and finance to drive the investment needed to decarbonise the real economy and unlock opportunities that will create jobs and wealth as well as tackling the climate emergency .”

A number of reports have recently indicated that senior figures in Number 10 regard attempts to tighten regulations as ‘unconservative’, but a growing number of mainstream businesses are willingly to make the case for smart regulation, arguing that can play a critical role in Both accelerating the net zero transition and enhancing the UK’s competitiveness.

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