Investors worth £10trn outline policy vision for sustainable finance in net-zero transition

Published today, the body’s policy vision outlines “urgent” measures that the Government should take if the financial sector is to adequately play its role in the transition to net-zero. It is based on the input of hundreds of organisations including banks, financial services providers, investors and insurers.

The vision calls on Ministers to “provide clarity urgently on what net-zero means for each sector of the economy”. The Government has promised a comprehensive net-zero roadmap ahead of COP26  and, as rumours continue about potential delays or a virtual format, UKSIF is urging the publication as soon as possible. Clear direction, the policy vision states, is needed for businesses to gain investor certainty and properly plan for the transition.

UKSIF also wants more clarity on several of the key ‘green’ measures announced at this year’s Budget. The National Infrastructure Bank (NIB), for example, was due to begin operating in the first quarter, but the UK is still waiting.

The policy vision calls on the Treasury to ensure that the NIB has a clear investment pathway for the green economy, a strong net-zero mandate, and teeth to tackle non-compliance from investees. Separately to the NIB, the sector would benefit from further long-term clarity on the government’s investment programme for ‘green’ products and services.

And, building on the Pensions Bill, the policy vision argues that the government should work with regulators to ensure that pension scheme and saving scheme staff have proper climate skills. The Bill stops short of mandating divestment but will require large pension schemes to disclose the climate-related risks posed to assets in their portfolios by the end of 2022, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

UKSIF’s vision also states that members are willing to “take a prominent role” in supporting the Taskforce on Nature-related Financial Disclosures’ recommendations. Due later this year, the recommendations will help businesses to quantify their nature-related risks in a range of scenarios.

Just transition

As well as measures relating solely to environmental sustainability, the policy vision covers the Government’s commitment to socially ‘levelling up’ between and within regions and how this can be coupled with net-zero.

According to UKSIF, the creation of a Just Transition Commission could ensure a holistic approach. Such a commission could be modelled after the existing one in Scotland. It would be tasked with developing a common language around the issue, developing roadmaps for each sector of the economy and advise policymakers.

The work of the Commission could be supported by new requirements for businesses to prove how they are protecting their workers’ physical and mental health and to support them financially if the sector is at risk from the energy transition. Such requirements could be delivered through amendments to the Companies Act.

This latter recommendation chimes with some of the facets of the Better Business Act. The act is spearheaded by the B-Corporation movement and would amend the Companies Act so that all businesses are obligated to benefit workers, customers, communities and the environment as well as shareholders.

UKSIF is also advocating for mandatory ethnicity pay gap reporting at large companies and legally binding targets for female board representation in the UK’s private sector. The ONS estimates that Black and minority ethnic staff earn, on average at least 29% less than their white counterparts, On the latter, the Government’s own figures show that 34% of FTSE 350 board positions are held by women, despite women accounting for half of the population.

UKSIF’s chief executive James Alexander said the policy vision shows that finance sector players “stand ready to work with government and others to shape the future success of this vital industry”.

Mounting pressure

The publication from UKSIF comes amid a backdrop of increasing criticism of the Treasury’s approach to net-zero.

A major report from the Public Accounts Committee (PAC) today accuses the Treasury and HMRC of failing to make the necessary changes to tax systems and short-term funding packages needed to align activities with net-zero. The report points to hypocrisies such as fuel duty freezes and proposed cuts to Air Passenger Tax and potential underlying causes, such as narrow definitions of what constitutes a ‘green’ tax and poor collaboration with other departments.

The report builds on a previous PAC paper stating that the Government has no credible plans in the short and mid-term to back up its long-term climate goals.

On finance specifically, the lack of a poor ‘green’ tax framework has also been raised by the likes of the Green Alliance and the Zero Carbon Campaign.

Join the conversation at edie’s Sustainable Investment Conference

On July 13 and 14 2021, edie is uniting corporates, asset managers and asset owners, among other key stakeholders, for frank and open discussion around disclosure and investment priorities, roadblocks and innovations.

Over the course of the virtual two-day event, there will be panel discussions, interactive Q&A sessions, workshops, networking opportunities and more. Expert speakers have already been confirmed from organisations including Citi, Credit Suisse, UBS Asset Management and the IIRC. 

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Sarah George

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