UK Plans to Make Financial System Greener
The UK's finance ministry announced strategies to achieve the nation's goal of becoming the first financial centre in the world aligned with net-zero emissions. The proposed measures aim to eliminate "greenwashing" in the financial markets and direct funding towards sustainable initiatives.
In an update to its Green Finance Strategy, the ministry stated that it intends to equip market participants with the necessary information and resources to conform to the country's climate and environmental objectives.
Following the lead of the European Union, the ministry has released a consultation paper aimed at regulating the rating agencies that evaluate the environmental, social, and governance (ESG) aspects of companies. These ratings are used by investors who seek to invest in sustainable assets.
According to the consultation paper, asset managers oversee a total of 10 trillion pounds ($12.35 trillion) in assets, with almost 50% having integrated ESG into their investment process. Regulators are pushing for greater transparency in these ratings to combat greenwashing, which refers to exaggerated sustainability claims.
To address this issue, the sector is developing a code of conduct known as the ESG Data and Ratings Code of Conduct, which outlines best practices.
Later this year, the UK will launch a public consultation on a taxonomy to provide investors with a clear definition of what qualifies as sustainable investments. The government had previously halted work to assess the EU's taxonomy before resuming the process.
In a statement, the ministry said that this will enhance the quality of standards, labels, and disclosures for green finance activities within the industry. The government intends to include nuclear power, which is a vital technology in achieving net-zero emissions, in the UK's Green Taxonomy after seeking public consultation.
According to PwC, the government has decided to implement a voluntary taxonomy for the first two years, which is a reversal from its earlier commitment to a mandatory system.
PwC UK's sustainability partner, David Croker, stated that the specifics of the consultation later this year need to be examined, but a voluntary approach may result in UK companies aligning themselves with the EU taxonomy or not complying with the taxonomy entirely.
The ministry has announced that in the fourth quarter, the UK will seek public consultation on regulations requiring large companies to disclose their transition plans for achieving net-zero carbon emissions if they have any.
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