Under new guidelines proposed by the Treasury, some large UK corporations will be required to begin disclosing their environmental effect. Investment products and pension schemes will be subject to the same criteria.
It comes ahead of the United Nations Climate Change Conference (COP26) in Glasgow in November, where world leaders will address their climate obligations. According to experts, the UK, which is hosting the event, is now falling short of its own emissions targets.
Boris Johnson has promised to reduce emissions by 78% by 2035, compared to 1990 levels. According to the Treasury, new sustainability disclosure standards (SDR) compel investment products to disclose the environmental impact of the activities they fund.
Furthermore, a company’s sustainability claims must be “fully justified,” and its net zero transition plans must be appropriately laid out. The goal is to stop companies from making false claims about their environmental commitments, which is known as “greenwashing.”
However, the government claims that the information will “only have an impact” if customers and investors use it. “We want sustainability to be a significant component of investment decisions,” said Chancellor Rishi Sunak, “and our initiatives will provide investors with the proper information to make more environmentally-driven decisions.”
The guidelines, he said, will “establish new worldwide sustainability norms that will enhance the economy, safeguard the environment, and support our net zero ambitions.” It’s unclear when the restrictions will take effect or what would happen to businesses who don’t follow them. Only after a public consultation will the particular reporting criteria be defined.
‘A positive step forward’
Mr Sunak originally suggested SDRs in July, and in his report “Greening Finance: A Roadmap to Sustainable Investing,” he revealed the next steps for the requirements. It was a “good step in greening the private sector,” according to Sam Alvis of the Green Alliance research tank.
“While new green finance is critical, it is also critical to stop money from entering into environmentally damaging investments. The chancellor’s upcoming spending review is an opportunity for him to apply the same principles to all government spending “Added he.
Greater clarity on environmental impact, according to Rain Newton-Smith, chief economist at the Confederation of British Industry, “will assist investors channel capital towards projects that are linked with net zero ambitions and will cut carbon emissions across our economy.”
However, Heather McKay of E3G, an independent climate change research tank, told the BBC that the government would need to provide clear signals about “what is green and what is not” in order for businesses to truly modify their ways of doing business.
This, she argued, would be a “critical step” in combating greenwashing. Investors and pension funds have made judgments “in the dark” because they don’t have the necessary information, according to Jessica Fries, chairperson of Accounting for Sustainability.
“As a global financial center, it will be critical that the suggestions fit with increasing global requirements,” Ms Fries said. Better enforcement of present accounting regulations, according to Barbara Davidson of think tank Carbon Tracker, is also needed to counteract greenwashing.
“Without this, investors will be unable to make informed decisions regarding the implications of climate change,” she explained. According to a committee of specialists who advise the government, Boris Johnson’s government is on course to decrease just roughly a fifth of UK emissions by 2035, compared to 1990s levels.