On 14 November 2024, a significant event took place as Rachel Reeves delivered her first Mansion House Speech. She emphasized that "sustainable finance" would be one of the UK's five priorities within the government's Financial Services Growth and Competitiveness Strategy. Simultaneously, Growth Minister Lord Spencer Livermore, representing HM Treasury at COP29, laid out the UK's commitment to becoming the sustainable finance capital of the world on the 'Finance, Investment, and Trade Day' in Baku, Azerbaijan. This commitment is accompanied by a Call for Evidence on the government's Strategy, with a short deadline of 12 December 2024, and the final Strategy set to be published in Spring 2025. HM Treasury has also sent remit letters to the Financial Policy Committee and others, confirming their support for sustainable finance as an area of policy in financial services.
UK Green Taxonomy - Its Value Case Under Consultation
On 14 November 2024, the UK government's HM Treasury published a consultation to gather views on the value case for a UK Green Taxonomy. This is an integral part of the UK's wider sustainable finance framework. The objective is to determine if a UK Taxonomy would be an additional and complementary measure to existing policies in achieving the goals of mitigating greenwashing and directing capital towards sustainability. The consultation seeks input on market and regulatory use cases that would contribute to these objectives, focusing on usability and key design features. It does not seek detailed input on activity-level standards or broader climate and environmental strategies beyond sustainable finance. With numerous taxonomies already in place worldwide, the UK government aims to learn from past experiences and the effectiveness of other taxonomies. The consultation closes on 6 February 2025. 1: The UK Green Taxonomy holds great potential in guiding financial flows towards environmentally sustainable activities. It provides a clear framework for investors and businesses to identify and support green initiatives. By establishing specific criteria and classifications, it helps to ensure that capital is allocated to projects that have a positive impact on the environment. This not only benefits the planet but also enhances the credibility and transparency of the financial system. 2: The consultation process is crucial as it allows for diverse perspectives and expertise to contribute to the development of the UK Taxonomy. It provides an opportunity for stakeholders to voice their concerns and suggestions, ensuring that the final taxonomy is robust and effective. The input received will help shape the future of sustainable finance in the UK and set an example for other countries.ESG Ratings Regulation - Legislation and Consultation Set in Motion
Also on 14 November 2024, the UK government launched a consultation on draft legislation to bring ESG ratings providers within the regulatory regime. This follows the previous government's consultation on the same. The UK government has published its feedback response, outlining the scope of the regulatory regime and the ESG ratings activities proposed to be included or excluded. The draft legislation has also been published, with a deadline for comments by 14 January 2025. 1: The introduction of ESG ratings regulation is a significant step in ensuring the integrity and reliability of ESG ratings. It aims to address concerns about the quality and consistency of ratings and provide greater transparency to investors. By bringing ESG ratings providers under regulation, the UK government hopes to enhance market confidence and promote the growth of sustainable finance. 2: The FCA has welcomed this consultation, stating that bringing ESG ratings providers into regulation is widely supported by the industry. This indicates that there is a growing recognition of the importance of regulating ESG ratings to protect investors and ensure the accuracy of information. The FCA also plans to consult on proposals for the future regulatory regime in 2025, following the finalization of the legislation.Other Sustainable Finance Areas in the Strategy
The other areas of the sustainable finance commitments in the Strategy include co-launching a Transition Finance Council with the City of London Corporation. This collaboration aims to drive the transition to a more sustainable economy by bringing together key stakeholders and sharing best practices. 1: The Transition Finance Council will play a crucial role in facilitating the transition of industries towards low-carbon and sustainable practices. It will provide a platform for dialogue and cooperation between financial institutions, businesses, and policymakers, enabling the development of innovative financing solutions. 2: Additionally, the UK government has committed to consult on the UK sustainability reporting standards, which are to be based on the ISSB. This shows the government's commitment to aligning UK reporting standards with international best practices and providing clear and consistent information on sustainability. The UK government has also published its intention to make endorsement decisions on the ISSB's two main standards by Q1 2025. 3: Integrity principles will also be launched on the voluntary carbon and nature markets ahead of a consultation. These principles will help to ensure the integrity and transparency of these markets, preventing greenwashing and promoting the growth of sustainable activities.With sustainable finance firmly prioritized, asset managers and all other financial market participants need to closely monitor the progress of various workstreams and assess the impact on their operations. They also need to stay updated on whether the UK developments are interoperable or divergent with EU and US legislation and expectations.