Climate risk disclosure and the new green bond
Earlier this week, Rishi Sunak and the FCA announced that climate risk disclosure would become mandatory for many of the UK’s largest organisations by 2025. As part of the announcement, Sunak also revealed a new green bond designed to stimulate sustainable growth and reinforce Britain’s position as a global green finance centre. We explore what these two developments mean for UK businesses and how best to prepare.
Doubling down
Climate risk disclosure describes a voluntary process whereby large organisations would assess how the effects of global warming could influence their practices and success in the near-midterm future.
The purpose of these disclosures is to better prepare both companies and their investors for unforeseen circumstances due to climate change. On Monday, Rishi Sunak announced a roadmap that would see these disclosures become mandatory for a wide range of organisation types.
This roadmap dictates that the fulfillment of new criteria will arrive gradually over the next five years. The FCA will publish the first set of rules at the end of 2021.
The FCA’s decision most immediately affects financial institutions with a premium listing. It will foster investor confidence as the UK tries to rebuild its economy. Banks, building societies, insurance companies, and occupational pension schemes worth more than £5bn are among the types of organisations affected. They will be expected to provide their reports by late 2022.
The roadmap then stipulates how these requirements will be extended across other sectors leading up to 2025.
The UK is the first G20 country to introduce mandatory climate disclosure and it’s an interesting gambit from the FCA. Obviously, the hope is that investors will recognise the long-term risk of climate change and that the shift will bolster their confidence in UK finance.
If this is the case, the disclosures will advertise the UK as a financing powerhouse despite climate change uncertainties.
“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…”
-Paul Simpson, chief executive of CDP
Green funding and future intelligence
Unlike mandatory climate risk disclosure, green bonds are not a new concept. The UK will be following countries like Germany and Sweden in opening this new avenue for green investment.
The bond becomes available in 2021 as a part of the government Covid-19 stimulus package. The announcement came after vocal support from a group of major UK investors. Collectively, the 30 individuals that lent support for a green bond manage over £10 trillion in assets.
Sunak also announced that the UK would deliver a universal framework for determining the sustainability of different economic activities. The intention is to create objective criteria to judge which projects should be deemed appropriate to benefit from the bond.
The takeaway from both these announcements is that the value of data on carbon emissions and usage continues to grow. Current plans for disclosure only include financial institutions. However, the momentum of action on climate change suggests that more and more companies will need to disclose.
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Active engagement with your carbon footprint and its reduction demonstrates a commitment to mitigate climate risk to would-be investors. For further information on these services get in touch.
