When Rachel Reeves made her Mansion House speech last week, it was pension consolidation that hit the headlines.
But there was plenty about sustainable finance among the UK chancellor’s announcements, too.
“It was the first real glimpse into the shape of the new government’s plans for green investment,” says Evan Guy, a senior associate at London-based consultancy Global Counsel.
“Earlier in the year, we heard about National Wealth Fund and Great British Energy,” he says. “But now we’ve got a clearer sense of how they will deliver on these promises of a world-leading regulatory ecosystem in this area.
”Some of the news was predictable: an upcoming consultation on stronger corporate disclosure requirements, draft regulation to bring ESG ratings providers into the remit of the Financial Conduct Authority (although data providers have been dropped from the plans) and the creation of a Transition Finance Council in response to recommendations from the recent Transition Finance Market Review.
The government reinstated the Bank of England’s mandate to support sustainable finance – something that was removed by the previous government – and updated the remit letters of key regulators and supervisory committees to refer to the need for investment in the green transition.
And there were proposals for strengthening the voluntary markets for carbon and nature credits.
Transition plans
Reeves also promised a consultation next year on the introduction of climate transition plan requirements.
It’s a topic the former government fleetingly took international ownership of by creating the Transition Plan Taskforce, but it lost interest towards the end of its term and no rules were introduced.
Labour hasn’t spelt out its intentions, but during its election campaign the party pledged to make the implementation of climate plans mandatory for major companies and financial institutions.
“Those requirements are definitely expected to apply to UK pension schemes,” says Claire Jones, a partner at pensions consultancy LCP. “But it remains to be seen exactly which schemes, and how.”
There’s a hope, she says, that the government will simply amend the existing Task Force on Climate-related Financial Disclosures (TCFD) reporting rules, rather than creating a whole new set of additional ones.
“The TCFD requirements currently focus on pension trustees’ role in managing climate risk to their schemes, but they could be updated to include a forward-looking element that focuses on the real-world climate impacts of their investments,” Jones suggests.
“So pension trustees have to show how they’re aligning their assets with net zero, not just protecting the scheme’s financial returns from climate change.”
Taxonomy
The government’s approach to a green taxonomy was a lot less enthusiastic than many had expected, given how loudly Labour had criticised the Conservatives for delaying the framework during their time in office. Now in power, they’ve said they will consult on whether to have such a framework at all.
“It’s a little ironic that, now they have a chance to push this through, they’re potentially delaying it even further by consulting not on the details, but on whether it’s actually worth doing in the first place,” says Guy.
“Obviously, that’s a change from what they were saying when they were in opposition.”
But Simon Brennan, who runs Deloitte’s platform for sustainability regulation in EMEA, says the consultation will be welcomed by some.
“There is a feeling in parts of the finance sector that there may be a different, industry-led way to standardise green definitions and terminology,” he notes, adding that it’s “probably a sensible next step to have a consultation on whether a taxonomy is really the best way to achieve that objective”.
Mixed feelings
Sentiment is mixed about whether the Mansion House speech paves the way for an investable climate transition in the UK.
“What was missing from all the announcements was any actual incentivisation to invest in the green transition, and sustainable finance wasn’t sufficiently integrated into the broader mission for economic growth,” says Jones.
“If pension schemes are to invest in the green transition, they need it to be financially attractive and clearly aligned with their fiduciary duty, and that hasn’t been obviously helped by anything in this package.”
The upcoming industrial strategy could provide more support: the government has promised to publish detailed plans for the eight sectors (including financial services) it sees as most important to the future of the UK economy.
They won’t be dedicated decarbonisation pathways, but Jones hopes they will set out clear, credible plans for how each sector will align with national climate goals and give asset owners confidence to invest in the UK’s net zero transition when allocating capital in the future.
A call for evidence is now open for the Financial Services Growth and Competitiveness Strategy.
Brennan is more bullish about the impact of Reeves’ green finance announcements.
“There is lots the government needs to actually execute on beyond just the consultations, but there is a genuine strategy behind the ambition now,” he tells IPE. “That’s not necessarily been true in the past.”
In the round, he believes, the commitments – along with the ones already made around leveraging public finance – are coming together into a coherent plan.
“You can see how things like increasing the availability of transition plans and strengthening sustainability disclosures will help mobilise the investment needed to finance the transition.”
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