Chancellor Rishi Sunak confirms UK’s first sovereign green bond, mandatory TCFD disclosures

Major investors and influential corporate groups had been encouraging the changes

Speaking at the Green Horizon Summit on Monday (9 November), Sunak confirmed that the UK will issue its first sovereign green bonds in 2021 as part of its Covid-19 stimulus planning. He also promised that the UK’s first green gilts will not be its last.

Nations including Germany and Sweden have already issued sovereign green bonds as part of their efforts to create a green Covid-19 recovery. Demand for the UK to follow suit has been strong. Last month, a group of 30 major investors with more than £10trn of assets under management collectively urged the Treasury to deliver a green bond as soon as possible, in line with the recommendations of the Green Finance Institute.

“This will be the first in a series of new issuances as we look to build out a green curve over the coming years, helping to fund projects to help tackle climate change, finance much-needed infrastructure and investment and create green jobs across this country,” Sunak said.

To ensure that the government allocates funding raised through the bond appropriately, the Treasury has outlined a commitment to implement a green finance taxonomy, similar to that being developed by the EU. The taxonomy defines which activities can be defined as “green” and as aligned with the UK’s long-term climate targets.

The Treasury will now begin convening a new UK Green Technical Advisory Group for the taxonomy’s creation and implementation.

TCFD mandate

Also at the summit, the Financial Conduct Authority (FCA) outlined stricter rules on climate risk reporting in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD).

From 2023, all publicly listed UK companies with a premium listing will be required to “comply or explain” with the TCFD’s requirements. Rules will then be tightened and extended further in 2025, subject to consultation.

Vast swathes of the UK’s finance industry will be subject to these new requirements, including major pension schemes, life insurance providers and asset managers, Sunak said.

The UK Government first confirmed its intentions to mandate TCFD-aligned through its Green Finance Strategy, published in 2019. Its finance strategy for COP26 includes plans to help businesses prepare for disclosure, alongside warning that stricter requirements on which organisations are required to disclose could come soon. But with the conference delayed by a full year, these resources have not yet been publicly launched.

On a global scale, the TCFD recently posted an updated status report. The document revealed that verbal commitments to support its recommendations have skyrocketed by 85% within a year. Some 1,500 organisations, including banks, pension funds, reinsurers, end-user businesses and government departments have vowed to implement the framework. However, the gap between talk and action remains – the quality of reporting has increased by an average of just 6% since 2017.

Industry reaction

As expected, the new measures have been broadly but cautiously welcomed across the UK’s green economy.

“As the first G20 government to [mandate TCFD-aligned disclosures], this sends a powerful signal to the market and other governments that they should follow the UK’s approach, ahead of COP26,” CDP’s chief executive Paul Simpson said. “We look forward to reviewing the scope of these proposed changes: it will be important that they cover all sections of the economy. 

“Mandating climate disclosure in alignment with the TCFD recommendations will increase the critical mass of data needed by investors and other stakeholders to accelerate measurement and management of a broad set of environmental issues and will ensure that the data is in an internationally accepted framework that promotes greater comparability of disclosures.”

More than 9,600 companies currently report through CDP’s TCFD-aligned disclosure platform. 84% of the FTSE100 are represented in this cohort.

“The Government’s intention to legislate for companies to disclose their exposure to climate risks in line with the TCFD recommendations is an essential step in improving the quality, comparability and transparency of climate-related disclosures across the economy and one which the Aldersgate Group has long called for,” the Group’s executive director Nick Molho said. “To ensure that this new reporting regime results in better decision making, it will be important that companies be required to report how they are managing the climate risks they have identified.”

Like the Investment Association, the Aldersgate Group has been calling for mandatory TCFD-aligned disclosures for more than a year. It represents some of the UK’s largest businesses including BT, Ikea and Sky. The Group is also encouraging the government to set up a National Investment Bank with net-zero as a core remit.

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