Economic growth “will continue to be the central mission in the weeks, months and years ahead”, as Rachel Reeves identified sustainable finance and asset management as two of five priority growth opportunities for the government’s strategy to focus on.
In the annual chancellor’s speech at Mansion House, Reeves said she wanted London “to be the place where the billions needed to finance the energy transition are financed”, and, building on the launch of the Climate Investment Fund Capital Market Mechanism on the London Stock Exchange earlier this week, she announced a number of measures designed to deliver “a world-leading sustainable finance framework”.
These included a commitment to consult on mandatory ISSB disclosures for large companies after the UK endorsement process, as well as consulting on how best to implement Labour’s manifesto commitments on transition planning in the first half of 2025.
The Bank of England’s mandate will also once again consider climate change in a reverse of the previous government’s decision to remove it.
Reeves also announced the publication of a draft statutory instrument on ESG ratings regulation for technical comments and, building on the Transition Finance Market Review recommendations, the government has co-launched the Transition Finance Council with the City of London Corporation.
On the government’s consultation response and draft statutory instrument for the regulation of ESG ratings providers, Gemma Woodward, head of responsible investment at Quilter Cheviot said it was pleasing they’re pressing ahead: “Firms offering ratings on environmental, social and governance factors have grown rapidly in recent years, and the differences in the methodologies behind these ratings can be problematic. Much of this is down to data sets being interpreted in very different ways, so a coherent and pragmatic set of guidelines will help to bring about a standardisation.
“With deadlines for the Sustainable Disclosure Requirements also upon us, this has come at the right time given the sometimes over-reliance asset managers place on these metrics and ratings to meet their own regulatory reporting. We need to make sure that capital allocators are not overburdened and can make decisions on responsible and sustainable investments in a timely manner – that is the only way to help money flow into companies and projects that need it most.
Meanwhile, James Fotherby, senior policy officer at Aldersgate Group, said supporting hard-to-abate and high-emitting sectors in their decarbonisation efforts “is essential for meeting our climate goals and ensuring a just transition”.
“Overall, these policies will not only help address greenwashing risks but also equip the market with the consistent, comparable information needed to integrate climate and nature considerations into business and financial decisions.”
Additionally, Reeves announced the launch of integrity principles for carbon and nature markets, the details of which were revealed today (15 November). The principles, alongside a process to ensure their implementation, include a public consultation to determine how to strengthen market integrity to support the UK’s domestic and global climate and nature goals.
The UK principles specify a focus on biodiversity integration, claims integrity and mandatory reporting. A consultation in early 2025 will look at the proposed implementation of these principles, through guidance, standards and regulatory oversight by UK government.
“Companies and investors need clear signals that taking action and being ambitious on climate using voluntary carbon markets is supported and recommended by policymakers, and that is what the UK government is providing today,” said Mark Kenber, executive director of the Voluntary Carbon Market Integrity Initiative (VCMI).
“The principles for high integrity voluntary carbon markets are well aligned with the VCMI Claims Code, establishing a robust framework for ambitious, transparent use of VCMs to fund climate action. Alongside the guidance and guardrails, we also need the incentives that will encourage the private sector to use carbon credits with integrity and confidence in this critical decade.”
However, despite the strong package of announcements, there was some disappointment that the UK’s Green Taxonomy – the implementation of which has been delayed multiple times – continues to be stuck in consultation, with Reeves announcing the launch of a consultation on its value and use cases.
James Alexander, CEO of UKSIF, commented: “Among a range of positive measures, it is disappointing to see the green taxonomy continue to languish in hypothetical discussion. This announcement of a consultation on the use cases of the taxonomy is, in effect, a further delay when we should be consulting on the taxonomy itself.”
Further reaction
Simon Kew, head of market engagement at financial services consultancy Broadstone, said: “It is encouraging to see true reform proposed by the Chancellor to initiate serious dialogue around unlocking investment into the UK for productive finance to drive sustainable economic growth. So long as members are protected and UK investment can be kick-started successfully, then the proposals should be approached positively.
“Along with measures to deliver better value for pension savers, a consultation on how the Government can best help people make better-informed financial decisions demonstrates a welcome desire to improve financial outcomes for households.”
Meanwhile, Nitika Agarwal, head of sustainable finance policy at WWF, said the chancellor was right to identify green finance as central to the government’s growth mission and an opportunity to lead globally.
“Progress on a framework for sustainable finance is welcome. However, sustainable economic growth, and delivering value in people’s pensions is only possible if the financial markets, regulators and the government’s economic strategy take nature risk seriously. We cannot forget that the economy is a wholly-owned subsidiary of the environment.”
