Financial institutions to be required to produce net-zero transition plans

The government has announced plans that aim to help the UK become the “world’s first” net-zero aligned finance centre.

Financial institutions in the UK will be required to have robust firm-level transition plans, which will set out how the company will decarbonise to meet the UK’s net-zero targets.

As part of the plans, the government will provide “strong oversight” of the financial sector to ensure that financial flows are shifting towards supporting net zero.

Asset managers, regulated asset owners and listed companies will be required to published transition plans that consider the government’s net-zero commitment or explain why they have not done so.

As standards emerge, the government and regulators will look to incorporate them into the Sustainability Disclosure Requirements, while strengthening requirements to urge consistency in published plans and increased adoption by 2023.

The government stated that it intends to legislate to deliver these aims.

It will also establish a Transition Plan Taskforce with industry members and regulators to develop a ‘gold standard’ for transition plans and reporting by the end of 2022.

“This will set a robust standard and help to tackle greenwashing,” the government said.

“E3G and the Centre for Greening Finance and Investment (CGFI) will act as the secretariat, with funding provided by philanthropy. The FCA will be formally involved and will have regard to its findings.”

Furthermore, the government will publish a transition pathway for the financial sector next year, setting out how the sector will transition to net zero by 2050.

The government emphasised that it was not making firm-level net-zero commitments mandatory and that investments in carbon intensive activities would still be allowed.

Commenting on the announcement, UK Sustainable Investment and Finance Association (UKSIF) chief executive, James Alexander, said: “We warmly welcome the Chancellor’s ambition to make the UK the world’s first net-zero aligned financial services centre.

"As the first major economy to legislate to cut emissions to net zero by 2050, this is a natural step in the UK’s climate leadership journey and recognises the central role of the sustainable finance sector in addressing the climate crisis.

“UKSIF and our members look forward to actively engaging in these next steps, particularly helping to build a shared definition of a good quality transition plan and more broadly a net-zero finance sector.

"Government and regulators should work closely with the financial services industry to identify the policies and actions required to progress our sector towards this world-leading ambition.”

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