Government pushes ahead with plans to make UK ‘green financial capital of the worldʼ

Three consultations launched by the Department for Energy Security and Net Zero this week signal that the UK government is pushing ahead with rules that will further the country’s green transition.  

The consultations help deliver on chancellor of the Exchequer Rachel Reevesʼ Mansion House promise to make the UK “the leading sustainable finance capital of the world”, energy secretary Ed Miliband said on June 25.

“Our plans will transform our leading financial services sector into a global hub for green investment,” he added.

Together the three consultations will deliver uniform — and assured — sustainable information for investors on how companies plan to meet the UK governmentʼs statutory requirement to reach net zero by 2050.

Sustainable reporting standards

The UK will adopt the international sustainable reporting standards IFRS S1 and S2 — rebadged with six “minor” tweaks as UK SRS S1 and S2. These include removing a one-year transition relief in the IFRS S1 standard for including sustainable information in annual reports, but giving firms a two-year grace period to include sustainable data beyond climate data in their annual reports.  

Andrew Ninian, director for stewardship, risk and tax at trade body The Investment Association, welcomed the plan for UK SRS S1 and S2.

“International comparability is also key, and with companies already preparing for reporting in line with ISSB, endorsing the standards will allow investors in UK companies to fully understand their long-term sustainability risks and simplify reporting expectations in the UK and globally,” he said.

Better reporting would “increase green finance flows”, agreed Ian Bhullar, director for sustainability policy at banking trade body UK Finance.

To date, more than 30 countries have adopted or are in the process of adopting the IFRS sustainability standards, which have also been endorsed by the International Organization of Securities Commissioners (IOSCO).

Transition plans

According to Bloomberg New Energy Finance (BNEF), the UK will need to invest a total of £130 billion into the transition each year on average to 2050 in order to meet its net zero commitment. For context, in 2024 UK total investment in green transition was less than half this amount.

More than 70% of FSTE 100 companies already produce transition plans on a voluntary basis. In his foreword to the transition plan consultation, Miliband said such plans were a “vital part” of the government’s commitment “to secure Britain’s position as the green finance capital of the world”.

James Alexander, CEO of the UK Sustainable Investment and Finance Association (UKSIF), said transition plans were “essential for enhancing growth and global competitiveness as the UK and other countries decarbonise”.

This view was supported by Bruno Gardner, head of climate change and nature at pension provider Phoenix Group, who added that transition plans were critical for investors to be able to direct capital to companies “best equipped to navigate the transition”.

“As a long-term investor, policy developments that provide greater certainty around the net zero transition enhance the UK’s role as the leading centre of sustainable finance,” he said.  

The consultation takes forward the recommendations of the Transition Finance Market Review and the work of the Transition Plan Taskforce on disclosure frameworks. The consultation asks respondents to state a preference as to whether the UK should adopt a mandatory, or “comply or explain”, regime for transition plans.

Assurance

The third consultation suggests the introduction of a register of firms providing assurance of the sustainability data supplied by companies in their annual reports. The government is proposing to give the Audit, Reporting and Governance Authority (ARGA) — which will replace the Financial Reporting Council (FRC) — the power to set the qualifications necessary to register as an assurance provider for sustainability disclosures, and to supervise those providers.

All three consultations close on September 17.