The UK is at an important inflection point when it comes to sustainable finance, according to a report by The UK Sustainable Investment and Finance Association (UKSIF) – but changes could see a £100bn boost to sustainable investment.
After years of “trail-blazing” and being ranked number one on the Global Green Finance Index, the UK’s world-leading position is under threat, the report warned.
Therefore, it calls for “supportive policies and regulation” in three key areas to strengthen the UK’s sustainable finance sector.
The first is to deliver a “clear and world-leading sustainability disclosure regime”, whereby steps include the adoption of the International Sustainability Standards Board (ISSB) standards, the introduction of mandatory corporate transition plans and crucially, a UK green taxonomy.
The second is to empower investors by clarifying the fiduciary duty of pension schemes.
Here UKSIF said The Pensions Regulator “must issue clarification” to make it clearer to pension schemes that factoring in financially material ESG issues and managing associated risks and impact is consistent with fiduciary duties.
Furthermore, UKSIF said clarification of fiduciary duties from policymakers would address the lack of clarity in the market that, has arguably, contributed to a more risk-averse culture of investing in the UK.
UKSIF also called for investment consultants to be brought under formal FCA regulatory scope.
The third area is to embed biodiversity into the regulatory framework. Here UKSIF highlighted that if the UK is to meet its commitment to halt nature loss by 2030 and meet international commitments, policymakers and regulators must turn their focus beyond climate change risks alone.
UKSIF argued that the government “must look” to the incorporation of the Taskforce on Nature-related Financial Disclosures (TNFD) framework, specifically through support of the creation of a new ISSB standard for biodiversity and nature, IFRS S3.
UKSIF added that a new biodiversity-specific standard will better support financial services firms and companies in the UK and globally address the financial risks posed by damage to the world’s biodiversity and reduce the economic impact on GDP.
As part of the research, UKSIF surveyed 100 financial services organisations representing approximately £1trn in annual turnover and more than £200bn in green investments in the UK.
While 83% of those surveyed have expressed that the UK is still their top market for sustainable finance activity, lack of government clarity and supportive policy is creating a clear direction of travel, with two in three (65%) saying that they already have or plan to move investments out of the UK to a market that is more supportive of their sustainability goals.
Its research showed that 95% of respondents would increase their investment in the UK either through new projects (40%), existing projects (34%), or both (21%) if favourable policies are implemented.
From those surveyed, this would represent a potential shift of an estimated £100bn in assets under management, UKSIF calculated.
James Alexander, chief executive at UKSIF, said: “The UK is facing a crucial inflection point that could see it either close the remaining gaps and benefit from the great strides we have taken in our global leadership on sustainable finance to date; or lose its hard-won position as a leader.
“The recent flipflopping on wider sustainability policies, continued absence of detailed policy frameworks for various sectors, alongside secondary factors such as a lack of clarity from policymakers in creating a clear and stable financial services regulatory framework, is helping drive away much needed private capital into the UK that can help progress the country towards net zero.”
Comments