The UK Treasury has proposed that financial institutions and companies with shares listed on the London Stock Exchange must develop net-zero plans and publish them from 2023. The net-zero transition plans must detail how the companies will adapt and decarbonise as the UK moves towards a net-zero economy by 2050.
In support of the UK Government’s ambition to make the UK’s financial sector the most sustainable in the world, Rishi Sunak claimed at COP26 that the UK was leading the world in becoming the “first-ever net-zero aligned global financial centre”.
The first step in transforming the financial sector is collecting data. The Government has already set out economy-wide Sustainability Disclosure Requirements which will mean the data is integrated, streamlined, consumer-focused, credible, robust and in line with international standards.
To support its net-zero aligned financial sector ambition, the Government will also set up a high-level Transition Plan Taskforce to develop a ‘gold standard’ for transition plans by the end of 2022. This, alongside the Competition & Markets Authority’s (CMA’s) Green Claims Code, will help to tackle greenwashing and ensure robustness in net-zero planning. This year we look forward to the Government setting out a transition pathway for the financial sector, with new policies and milestones looking further to 2050.
This is a great step towards a greener economy. However, data and transition plans alone are not useful in making change in the sector. We will need to see investors use the data, place importance on the sustainability of businesses and shift their financial flows to align with a greener economy. The aim is that by increasing accountability and transparency, investors will be better placed to make green decisions about their money. This is what will ultimately create progress in the financial sector.
Luckily, we are seeing investors increasingly interested in sustainable businesses. In 2020, 85% of investors considered ESG factors in their investments[1] and this number is rising. With investors investing more heavily in ESG funds, sustainable organisations will gain better access to capital, see improved stock performance and reap the rewards of being a green business.
If you would like to discuss how your organisation can align to the requirements outlined above, please feel free to get in touch: anokhi.kalayil@Luminous.co.uk
References
[1] https://www.gartner.com/smarterwithgartner/the-esg-imperative-7-factors-for-finance-leaders-to-consider