Britain Sets Out Next Steps to ‘Green’ its Financial System

Britain’s finance ministry set out plans on Thursday to meet its target of becoming the world’s first net-zero aligned financial center, proposing measures to stamp out so-called greenwashing in financial markets and channel cash into sustainable projects.

The ministry said in an update to its Green Finance Strategy “we will ensure market participants have the information and tools they need to align to our climate and nature goals.”

In a step the European Union is also due to take, the ministry published a consultation paper on regulating raters of environmental, social and governance (ESG) aspects of companies, used by investors who want to put cash into sustainable assets.

Asset managers oversee assets worth 10 trillion pounds ($12.35 trillion), with nearly half having integrated ESG into the investment process, the paper said.

Regulators want more transparency on ratings to help combat greenwashing, or inflated sustainability credentials. The sector is already developing an ESG Data and Ratings Code of Conduct on best practice.

Later this year, Britain will hold a public consultation on a taxonomy – a guide for investors on what constitutes sustainable investments – after the government paused work earlier this year to learn lessons from the EU’s taxonomy.

“This will support the quality of standards, labels and disclosures used in the industry for green finance activity,” the ministry said in a statement.

“The government proposes that nuclear – as a key technology within our pathways to reach net zero – will be included within the UK’s Green Taxonomy, subject to consultation.”

The government has opted for a voluntary taxonomy at least for the first two years, rowing back on a previous commitment to a mandatory system, PwC said.

“We’ll need to see the details of what is consulted on later this year, but a voluntary approach could result in some UK companies aligning to the EU taxonomy, or not complying with the taxonomy at all,” PwC UK sustainability partner David Croker said.

In the fourth quarter, Britain will also consult on requirements for the largest companies to disclose their transition plans to net zero carbon emissions, if they have one, the ministry said.

Brendan Curry, policy fellow at the Grantham Research Institute on Climate Change, said the updated strategy has “failed to deliver” a clear roadmap for the annual investment needed for net zero.

Regulators will also look at whether the fiduciary duty on investment firms to act in the interests of customers could be clarified to include non-financial factors such as the transition to a net zero economy.

“However, despite the volume and detail of today’s announcements, there is nothing obvious within these plans which matches the ambition of the US’s Inflation Reduction Act,” the Institute of Directors said.

($1 = 0.8095 pounds)

(Reporting by Huw Jones; editing by Bernadette Baum, William Maclean)