UK Financial ESG Requirements: What You Need to Know

One of the key challenges many UK businesses face today is how to align with ESG (environmental, social, governance) regulations. With a constant shift in regulatory and investor/stakeholder requirements it can be difficult to keep up with the changes. Staying up to date is not only critical from a compliance point of view, but a business point of view too; having the right ESG strategy and reporting in place can drive efficiencies and save costs.

Committing to net zero

The ESG landscape in the UK is rapidly evolving alongside the increasing pressure of recent EU taxonomy & SFDR regulations, sectoral legislations and the UK Government’s plan towards a ‘Green Industrial Revolution’. There are also an increasing number of businesses across the country driving their own net zero agenda.

The need for greener and more sustainable business operations is being felt everywhere with climate change affecting every part of the world and the warmest decade (2010-2019) ever on record being recorded. To avoid further impact, the UN-backed Race to Zero initiative is calling for cities, businesses, investors and companies to commit to achieving net zero carbon emissions by 2050. As a result, in the last few years many well-known companies in the UK have pledged to reduce their carbon emissions including Vodafone, who is aiming to reduce theirs by 2030, and Sainsbury’s, who have committed to reaching net zero by 2040.

While there isn’t currently one overarching piece of legislation in the UK that covers all aspects of ESG, there are certain sector-specific regulations that businesses need to follow and there have been a number of developments within the financial sector during the last twelve months. One of the main developments includes Britain becoming the first G20 country to make recommendations from the Task Force on Climate-Related Disclosures (TFCD) mandatory.

The TFCD was launched in 2015 and aims to help investors understand their financial-related climate risks and companies to communicate their information more clearly. The law, which came into force on 6th April 2022, means that large UK businesses and financial institutions across the country will now have to disclose climate-related risks and opportunities and outline their commitment to sustainability in more detail.

A Greener Financial System

As part of the UK’s approach to tackling climate change, Chancellor Rishi Sunak revealed a roadmap in 2021 that’s designed for the financial sector. The roadmap sets out new Sustainability Disclosure Requirements (SDR) and aims to encourage financial businesses in the UK to disclose their environmental impact to discourage greenwashing and provide better transparency.

The roadmap is timely; as well as positively contributing to the climate crisis, there is an increased consumer demand for better insights into where money is being spent and how investments align with values.

A previous study by the Government found that more than 70% of the UK public want their money to make a positive difference to people and the planet, with almost 30% of people who currently hold investments saying that’s one of their top five important factors when making an investment decision.

A number of large financial organisations have pledged their commitment to a greener system including Legal and General, who has committed to becoming net zero from 2030, and Aviva, who is pledging to invest £2.5 billion in low carbon and renewable energy infrastructure.

So aligning to regulations is going to become increasingly important for all financial businesses from both a company and customer standpoint.

The need for better reporting 

Following COP26 and the release of the Government’s roadmap it’s clear how important accurate ESG reporting is for financial services – not just from a regulatory point of view but from a reputational point of view too. People now expect to have better insights to understand where money is being invested and the impact it’s having.

The UK requirements will call for businesses within scope to disclose information on sustainability metrics linked to governance, strategy, risk management and performance. While further updates on ESG regulation are expected later this year here’s what we do know:

  • As of 6th April 2022, large UK firms now have to disclose their climate-related financial information. In line with recommendations from the TFCD, the mandatory reporting is in a bid to provide more accuracy on climate-related risks and will support the UK’s wider green strategy. The changes will impact some of the UK’s biggest organisations as well as private companies with over 500 employees and £500 million in turnover.
  • The Government roadmap focuses on Sustainability Disclosure Requirements (SDR) and aims to streamline reporting requirements in line with the TFCD. All companies will need to report on this by 2025, with emphasis on risks and opportunities around climate change and giving consumers and investors the information they need to make a positive decision for the environment.
  • The roadmap covers a number of areas including sustainability disclosures in line with international standards and the UK Green Taxonomy (based on the EU’s taxonomy framework). The UK Green Taxonomy aims to be reviewed every three years and centres around the same objectives as the EU version: climate change adaptation, climate change mitigation, water use and marine resources, circular economy, pollution and biodiversity.
  • The Financial Conduct Authority (FCA) published a paper in 2021, which builds on TFCD and investment labels, outlining the need for product labels to show sustainability credentials.

You can read the Government’s full report here. More information will be released later this year, so watch this space.

More than just compliance

As the regulations evolve, it’s now crucial for financial services and corporates to adapt a robust ESG reporting strategy.
As well as complying with legislation and keeping up with consumer demand, there are a host of other benefits accurate reporting can bring.

We know ESG can be difficult to measure; our modular, customisable risk management solutions can:

  • Help you track and monitor all areas of ESG, providing real-time insights that allow you to reduce risk, take positive action and be compliant
  • Provide customisable data for wherever you are in the business. We know ESG reporting isn’t a one-size fits all and that different people need different data, which is why you can personalise your reporting to get the information that is needed both for your regulatory requirements as well as to make better business decisions
  • Give investors product assurance with in-depth analytics and transparency
  • Boost your sustainability credentials and speed up the reporting process, ensuring regulatory reporting is in line with global sustainability frameworks
  • Reduce the risk of error and improve productivity by automating processes
  • Build your ESG knowledge, with real-time information and access to a centralised ESG data system
  • Potentially save your business money with greater visibility and actionable insights around profit and loss

And much more…

Are you ready to streamline your ESG reporting? Get in touch with one of Turnkey’s ESG experts to discuss how we can help.

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Environmental, Social & Governance (ESG) Tracking & Metrics – A Better Way Forward

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