UK parliamentary group brings out guide to green finance

By ESG Clarity

The UK all-party parliamentary group (APPG) on ESG has released an introductory guide to greening finance, and set out ways in which the government can improve on sustainable finance.

The guide outlines the UK regulation coming down the line that will impact sustainable finance, such as the UK green taxonomy and the Sustainable Disclosure Requirements (SDR).

In December last year, the investment industry expressed its disappointment the UK government would not fulfil its legal obligation to put the climate elements of its green taxonomy into law by the end of 2022. Announced in March 2021, the green taxonomy is meant to clearly define which economic activities count as green.

With the SDR the Financial Conduct Authority has proposed three investment labels in order to clearly define what costs as a sustainable investment. These are sustainable focus, sustainable improvers and sustainable impact.

The APPG guide also explains green financial products, such as green bonds (where the proceeds must have a positive environmental impact), social bonds (where the proceeds have positive social impacts), sustainability bonds (a combination of green and social bonds), local climate bonds (a type of community municipal investment for decarbonisation projects), and green loans and mortgages.

The guide explains UK green finance structures such as the UK Infrastructure Bank, which helps facilitate private finance for green projects, and the Green Finance Institute, a government financed organisation fronted by private financiers tasked with identifying sector-specific financial solutions to promote investment in the green transition.

Industry groups aimed at supporting sustainability disclosures, such as the Taskforce for Climate-related Financial Disclosures (TCFD) and Taskforce for Nature-related Financial Disclosures (TNFD) are also described.

Composed of financial and sustainability experts. In 2017, the TCFD published recommendations to help companies improve their climate disclosures. The Treasury plans for climate disclosures aligned with these recommendations (TCFD-aligned disclosures) are to become mandatory across the economy by 2025.

Like the TCFD, the TNFD is developing a recommended framework for businesses to report on nature-related risks, to help finance move away from nature-harming activities.

Call to action

The APPG also includes industry views on how the UK can improve its sustainable finance policies, by making sure the green taxonomy catches us with the EU’s taxonomy, creating robust and science-based transition plans, and providing greater clarity over how the UK’s future tax and spending plans align with net zero.

It noted the UK government has also been called on to require all auto-enrolment default pension funds to be net-zero aligned.