{"id":154,"date":"2021-11-15T07:29:02","date_gmt":"2021-11-15T11:29:02","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/esg\/?p=154"},"modified":"2025-02-03T16:19:11","modified_gmt":"2025-02-03T20:19:11","slug":"the-hm-treasurys-roadmap-to-sustainable-investing-overview-and-key-considerations-for-businesses","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/esg\/2021\/11\/15\/the-hm-treasurys-roadmap-to-sustainable-investing-overview-and-key-considerations-for-businesses\/","title":{"rendered":"The HM Treasury’s Roadmap to Sustainable Investing: Overview and Key Considerations for Businesses"},"content":{"rendered":"\r\n

On 18 October 2021, the HM Treasury published a policy paper titled \u201cGreening Finance: A Roadmap to Sustainable Investing<\/em>\u201d (the Roadmap<\/strong>) that sets out the government\u2019s long-term strategy to green the financial sector.<\/p>\r\n

The Roadmap outlines a three-phase strategy to achieve this goal. The first phase is \u201cinforming\u201d where sellers of investment products, financial services firms and corporates will be required to report information on sustainability. The second\u00a0 phase is \u201caction\u201d where this information is mainstreamed into business and financial decisions. The third is the \u201cshift\u201d phase; ensuring financial flows across the economy shift to align with the UK\u2019s net zero commitment.<\/p>\r\n

The Roadmap sets out the government\u2019s strategy to achieve phase 1 through economy-wide Sustainability Disclosure Requirements (SDR<\/strong>), the UK Green Taxonomy and Investor Stewardship. Each of these are outlined below.<\/p>\r\n

1. SDR: what will businesses have to report on?<\/strong><\/em><\/p>\r\n

The SDR’s aim is to combine existing and new sustainability disclosure requirements in one framework for corporates, asset managers \/ owners and creators of investment products. The framework will be implemented through legislation, with sector-specific requirements being determined by government departments and regulators. The Roadmap emphasises that these new requirements will go further than existing disclosure requirements (such as those required by the Task Force on Climate-Related Financial Disclosures) by requiring reporting on environmental impact. SDR will also go beyond the FCA\u2019s existing ESG framework by requiring asset managers \/ owners and creators of investment products to substantiate ESG claims in a way that is both comparable and accessible. SDR will also require disclosure with reference to the UK\u2019s Green Taxonomy. Certain firms will have to publish transition plans, detailing how they intend to align with the government\u2019s net zero goal by 2050.\u00a0<\/p>\r\n

Certain UK-registered companies and listed issuers, including financial services firms, will need to disclose information about how they identify, assess and manage sustainability factors arising from their global operations in their Annual Reports. Financial services firms that manage or administer money for investors will need to disclose the sustainability-related information that clients and end-consumers need to make informed decisions about their investments. Investment product firms will need to disclose, at product level, the sustainability-related information that consumers need to make informed decisions about their investments.<\/p>\r\n

2. UK Green Taxonomy<\/strong><\/em><\/p>\r\n

The lack of commonly accepted definitions makes it difficult for companies and investors to clearly understand the environmental impact of their decisions and can lead to issues such as greenwashing. To address this, the government is implementing the UK Green Taxonomy (the Taxonomy<\/strong>) that outlines criteria that specific economic activities must meet to be considered environmentally sustainable and \u201cTaxonomy-aligned\u201d.<\/p>\r\n

Reporting against the Taxonomy will form part of SDR. Certain companies will be required to disclose the proportion of their activities that are Taxonomy-aligned. Providers of investment funds and creators of investment products will have to do the same for the assets that they invest in and products they create.<\/p>\r\n

The Taxonomy has six objectives: Climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems. Each of the environmental objectives will be underpinned by a set of standards known as Technical Screening Criteria (TSC<\/strong>). To be considered Taxonomy-aligned, an activity must meet three tests. It must make a substantial contribution to one of the six environmental objectives, do no significant harm to the other objectives (this aims to ensure that activities which support one objective do not have a significant adverse impact on another) and meet a set of minimum safeguards: these are minimum standards for doing business, constituting alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.<\/p>\r\n

Although Taxonomy-alignment will be determined by reported data rather than projections, the Taxonomy also recognises companies that are working to meet environmental objectives in the future. For example, due to technological constraints, some economic activities cannot currently be conducted in a way which is aligned with net zero-ambitions. For a number of these activities, the TSCs will set the threshold for Taxonomy alignment at the \u201cbest-in-sector\u201d emissions level. These are known as \u201ctransitional activities\u201d. Secondly, some companies will report on the proportion of their capital expenditure that is Taxonomy-aligned. This will enable these companies to demonstrate their investment in producing green activities in the future.<\/p>\r\n

3. Investor Stewardship in Green Finance<\/strong><\/em><\/p>\r\n

The Roadmap outlines the government\u2019s expectation that the pensions and investment sectors should seek to integrate ESG considerations into investment decision-making, monitoring and engagement strategies, escalation and collaboration (with other investors) and voting practices. For example, when exercising their shareholder rights,\u00a0 being ready to vote against directors, corporate actions or other resolutions.<\/p>\r\n

Next Steps<\/strong><\/em><\/p>\r\n

The key dates and developments to look out for are:<\/p>\r\n