Chancellor says UK to become global leader in sustainable finance

In her first Mansion House speech in November, Chancellor Rachel Reeves announced a series of measures to support “sustainable growth”.

Referencing a manifesto promise, she spoke of developing a “a world-leading sustainable finance framework… built in partnership with industry”.

Announcements made in the speech accompany other sustainable finance measures recently confirmed by the UK government.

UK Green Taxonomy

A consultation on the delayed UK Green Taxonomy was launched by government in November. This aims to gather input on the value case for a UK Taxonomy, specifically on whether it would be an additional and complementary measure to existing policies on preventing greenwashing and supporting sustainable investment. The consultation will also consider interoperability with other international taxonomies, amongst other issues. The consultation closes on 6 February 2025.

ESG ratings

The government has announced the release of draft legislation on ESG ratings. This follows earlier consultations concerned with increasing regulation around ESG ratings; the new legislation seeks to bring these within the supervision of the Financial Conduct Authority (FCA). The new regulations would require firms to provide better transparency around methodologies and conflicts of interest, amongst other areas. They will apply to both ratings generated in the UK as well as those produced overseas. The legislation will be introduced in early 2025, after which a four year development programme is expected before the new regime enters into force.

International Sustainability Standards Board (ISSB) standards

The government confirmed its earlier commitment to consult on the UK sustainability reporting standards, based on ISSB. The previous government endorsed the adoption of the new international standard. Endorsement decisions on the first two standards (IFRS S1 and IFRS S2) are expected by the end of Q1 2025. If endorsement goes ahead, the UK will develop its first two Sustainability Reporting Standards (SRS), after which the FCA will develop requirements for UK-listed companies to report sustainability-related information to their investors, subject to a consultation process.

Financial Services Growth and Competitiveness Strategy

The government has announced a Call for Evidence on the Financial Services Growth and Competitiveness Strategy. This will inform the development of the plan, which will launch in spring 2025. The call for evidence seeks to gather opinions on the scope and focus of the strategy, key business growth opportunities for firms, considerations around the UK as an investment destination, and ideas to enhance the competitiveness of the UK’s financial centre over the next 10 years. The call also asks for views on the 5 policy pillars proposed under the strategy: Innovation & Technology, Regulatory Environment, Regional Growth, Skills & Access to Talent, and International Partnerships & Trade. The call for evidence closes on 12 December 2024.

UK emissions targets

At the COP29 climate conference in Baku, Azerbaijan, the UK Prime Minister Keir Starmer announced that the UK will tighten its climate targets from a 78% reduction in emissions by 2035 (against a 1990 baseline) to an 81% reduction. The PM used his speech to confirm other initiatives including bringing an end to the previous government’s ban on onshore wind, an end to new North Sea oil and gas licenses, the closure of the UK’s last coal-fired power plant, and the launch of Great British Energy, which seeks to fund thousands of new clean energy projects.

Climate transition plans

The government has announced plans for a consultation on climate transition plans, to take place in the first half of 2025. This will focus on how best to take forward Labour’s manifesto commitments around making the UK a global hub for transition and sustainable finance and improving the UK’s regulatory framework. Details of this are yet to be confirmed.

The government also confirmed the launch of the Transition Finance Council alongside the City of London Corporation, which aims to support hard-to-abate sectors to transition towards net zero, a recent recommendation of the Transition Finance Market Review (TFMR).

We are happy to see this level of engagement and commitment to sustainable finance in the UK, and whilst this means UK organisations are likely to face additional regulation and disclosure in this area, we believe these new measures will provide the clarity needed to support investors and companies in this area going forward.

For more information and to discuss how you may be affected by new regulations, please get in touch.