Essential Corporate News – Week ending October 22, 2021

HM Treasury: Greening Finance – A Roadmap to Sustainable Investing

On October 18, 2021 the UK Government published ‘Greening Finance: A Roadmap to Sustainable Investing’. This builds on its Green Finance Strategy published in 2019, and it sets out the Government’s long-term ambition to green the financial system and align it with the UK’s net-zero commitment. 

Greening the financial system is to happen in three phases:

• Phase 1: Informing investors and consumers – ensuring decision-useful information on sustainability is available to financial market decision-makers;
• Phase 2: Acting on the information – mainstreaming this information into business and financial decisions; and
• Phase 3: Shifting financial flows – ensuring that financial flows across the economy shift to align with a net-zero and nature-positive economy.

This document focuses on Phase 1, which will be delivered through new economy-wide Sustainability Disclosure Requirements. It sets out implementation pathways for different sectors of the economy and provides more detail on the requirements, including that they will be:

• Integrated – investment products, financial services firms, and real economy corporates will be required to report consistent information on sustainability.
• Streamlined – the regime will streamline existing disclosure requirements, such as the UK’s commitment to make reporting aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) mandatory, with new requirements, including on reporting environmental impact.
• Consumer-focused – investment products will need to set out consumer-focused disclosures showing the impact, risks and opportunities of the activities they finance on sustainability. This will be accompanied by a consumer-facing label developed by the Financial Conduct Authority (FCA) so that consumers can make informed investment decisions that take sustainability into account.
• Credible – asset managers, asset owners and investment products will be required to substantiate sustainability claims they make.
• Robust – disclosure requirements will include reporting under the UK Green Taxonomy, which will provide a robust list of economic activities that count as environmentally sustainable.
• In line with international standards – the UK is a strong advocate for international standards for sustainability reporting, and is preparing the ground to adopt international standards in this area (subject to consultation).

Annex A to the document sets out certain sectoral pathways and summarises the regulatory approach to each type of entity and product. In terms of corporate disclosures, certain UK-registered companies and financial services firms will have to disclose information using the proposed International Sustainability Standards Board (ISSB) issued standards and appropriate metrics to explain the level of alignment of their activities with the UK Green Taxonomy, including minimum safeguards, in their annual report. The scope and timing of requirements for companies, and the reporting detail, will be determined following consultation. Certain UK-listed companies will have to disclose information using the proposed ISSB-issued standards, a set of minimum safeguards, and appropriate metrics to explain the level of alignment of their activities with the UK Green Taxonomy in their annual report. The scope and timing of these requirements for listed issuers, and the reporting detail, will again be determined following consultation. However, interim measures may be considered (for example, referencing relevant voluntary frameworks) to ensure appropriate coverage of sustainability topics pending the introduction of relevant international standards.

The document also sets out more details on the Sustainability Disclosure Requirements to help businesses prepare for what they will have to report and by when, sets out more detail on the UK Green Taxonomy, highlights the importance of investor stewardship in green finance and sets out the Government’s expectations. It also notes that the Government will update the Green Finance Strategy in 2022.

(HM Treasury, Greening Finance: A Roadmap to Sustainable Investing, 18.10.2021)

LSEG: Understanding climate risk and opportunity – Your guide to climate reporting

On October 20, 2021 the London Stock Exchange Group (LSEG) published a guide (Guide) to climate reporting setting out guidance for London-listed companies on the integration of climate reporting best practice and implementation of Task Force on Climate-Related Financial Disclosures (TCFD). 

The Guide is designed for all companies listed on the London Stock Exchange’s markets, regardless of their sector, size or the stage of their transition journey and is intended to support best practice and educate companies on how they can implement the TCFD recommendations. It notes that it is not intended to be a deep technical document but rather a broad overview intended to help companies understand the issues, grasp how they might apply in each company’s own case and take steps towards gathering and reporting the relevant information. It aims to clarify current global best practice in climate-related disclosure and provide a step-by-step guide to supporting companies starting on this journey. It is noted that it can be a starting point for report preparers who wish to integrate climate-related information for the first time, while also providing additional resources that can help enhance the quality of climate-related disclosure for those that are at a more advanced stage.

The Guide identifies a three-stage process as helpful for integrating and communicating climate-related information in alignment with the TCFD recommendations. It is recommended that all companies perform each of these steps, although the Guide notes that the depth and detail of each stage of the process may vary.

• Disclosure diagnosis and context: This involves understanding the relevance of climate change and taking stock of current strategy and disclosure practices. The Guide includes an overview of the evolution of climate-related disclosures and the current landscape to help companies understand the key considerations for their business. It also provides a checklist to help companies evaluate whether or not they are providing sufficient information to investors.
• Integration of climate-related risks and opportunities: Once management recognises the context and need for action on climate change within their organisation, climate-related considerations can begin to be integrated into the risk assessment and strategy development processes. It is noted that integration should be done from the top of the organisation and should filter down through policies, process and strategy.
• Disclosure of climate-related practices and data: This concerns communicating the organisation’s understanding through its disclosure of climate related practices, strategy and objectives to investors and stakeholders.

The Guide notes that companies may also want to communicate their commitment to disclosure through a statement supporting TCFD and notes that more than 2,000 companies representing in excess of $20 trillion in market capitalisation have announced their support for TCFD and its work since its launch in 2017, including global financial firms responsible for assets in excess of $178 trillion. 

The Guide complements LSEG’s separate ESG reporting guide published in 2020.

(LSEG: Understanding climate risk and opportunity – Your guide to climate reporting, 20.10.2021)