Chancellor Rishi Sunak has set out new requirements for asset managers to outline how they incorporate sustainability into their investment strategy in a bid to weed out greenwashing from the financial system.
For the first time, the Sustainability Disclosure Requirements (SDR) will require every investment product to set out the environmental impact of the activities in finances and justify any sustainability claims it makes.
The government’s requirements, published in a report titled Greening Finance: A Roadmap to Sustainable Investing, said SDR will ensure investors have all the information they need to make informed decisions about where to invest their money.
It said the roadmap was a “call to action” for the pensions and investments sector to start shifting flows to align with the net-zero economy.
Last week, MCSI research found the Paris Agreement climate targets are slipping further away with many of the world’s publicly listed companies still failing to disclose crucial information on emissions.
In addition, certain large businesses will also be required to set out their green credentials as the government looks to push ahead with its green finance plan ahead of the United Nations COP26 climate summit, set to be held in Glasgow at the end of this month.
The regime will look to streamline existing climate reporting requirements, including the UK’s commitment to implement mandatory reporting aligned with the Task Force on Climate-Related Financial Disclosures (TCFD).
According to the government, 70% of the UK public want their money to go towards making a positive difference to people or planet, but a lack of common definitions around ESG leaves it susceptible to greenwashing.
The government said the scope, timing and detail will be developed following a public consultation.
The Chancellor said: “We are already a world leader in green finance, and today’s roadmap will give us the opportunity to set new global standards for sustainability that will boost the economy, protect the planet and support our net-zero goals.
“We want sustainability to be a key component of investment decisions, and our plans will arm investors with the right information to make more environmentally-led decisions.”
Commenting on the report, Chris Cummings, CEO of the Investment Association, welcomed the Chancellor's announcement.
"We are encouraged to see the emphasis on addressing the data gaps and the flow of sustainability information from investee companies through to investment managers and to consumers," he said.
"This supports the responsible allocation of capital and ensures that savers have clarity, confidence, and choice when investing. We are also pleased to see the emphasis on investors’ role as stewards of their clients' capital in achieving this ambitious but critical green finance agenda."
The new roadmap comes as asset managers in Europe are gearing up to implement the second phase of the Sustainable Finance Disclosure Regulation (SFDR) after it was delayed by six months in July.