Following the welcome publication of the sustainability reporting standards (SRS) consultation package, rapid implementation will be essential to unlock capital at the pace and scale required to drive clean economic growth.
In their 2024 general election manifesto, Labour set out their ambition to make the UK the green finance capital of the world. This included a commitment to “mandate UK-regulated financial institutions and FTSE 100 companies to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.”
Delivery of this pledge is crucial to building a competitive, high-growth and resilient future for the UK economy. With over $2 trillion invested globally in clean tech last year the UK’s clean transition could boost GDP up to £149 billion per year, a £104 billion increase in inward investment by 2040.
Success will depend on strengthening the UK’s attractiveness as both a destination for inward investment and an outward centre for sustainable finance. This requires the UK to ensure a reliable and transparent flow of sustainability information to aid decision making. The UK can benefit as a leader in this space by building market confidence in the credibility of the UK transition finance market, and by embedding interoperability in its regulatory regime to reduce barriers to international finance flows.
This week, the government took a stride towards this goal by publishing a package of three consultations. These include:
- Taking forward the government’s commitment on transition planning
- Adoption of the UK Sustainability Reporting Standards (UK SRS)
- The development of a voluntary registration regime and authority for assurance providers.
Transition plans are central to this agenda. A key strategic tool for companies to better manage risks and opportunities associated with the transition, transition plans support the identification of growth opportunities, and can reduce losses and the risk of stranded assets – a risk subset that could cost UK businesses and investors $141 billion by 2040 if left unmanaged. A survey of UK-based institutional investors showed 86% are more likely to invest in a company if it is taking active steps to manage its climate-related risk.
This in turn can unlock investment across the economy, with 76% of investors saying that they would be encouraged to invest more in the UK if climate-related risk were reduced. The financial sector is clear on the value case for transition planning; 84% of UK investors say they are more inclined to finance companies with clear climate transition plans over those without. This has been a barrier to investment, with 79% saying that they are struggling to make progress on their goals without comparable, credible transition plan data.
Meeting market needs and accelerating investment requires the government to move swiftly to deliver its manifesto pledge by making it a mandatory requirement for all large companies to develop, disclose and implement credible, climate transition plans. This requires plans to align with the 1.5C goal of the Paris Agreement and be disclosed following the TPT Framework and ISSB. Core elements should include:
- Develop: All large listed and private companies should be required to develop climate transition plans.
- Disclose: To ensure global interoperability and the availability of relevant information for decision-making, all developed plans should be disclosed in line with the TPT Disclosure Framework. Requirements should come as part of the ISSB roll out in the UK.
- Align (with the 1.5C goal of the Paris Agreement): Companies must be required to set entity-level targets that align with a credible, science-based pathway.
- Implement: Companies should be required to make best efforts to implement their plan. The government must work with regulators and the market to develop mechanisms to penalise failure to do so.
To date, the UK has been an international leader in attracting global green and transition capital, with London ranked as the top green finance centre globally. The opportunity is clear, with the UK’s clean economy a major driver of growth, innovation and productivity – growing by over 10% last year. However, without ambitious action to make its regulatory regime future-fit, the UK’s global competitiveness is at risk.
Making it easier for investors to allocate capital into the UK and building market confidence in the credibility of the UK’s transition market requires government action to meet the growing need for credible, accessible non-financial information to inform decision-making.
