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UK green labels and sustainability disclosures are coming time to get ready

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    On 18 October – in advance of the COP26 Summit taking place in Glasgow– the UK Government set out its proposals for "Greening Finance: A Roadmap to Sustainable Investing" (the "Roadmap"). The publication was eagerly anticipated and - whilst not causing shockwaves with its content - sets out more detail what UK financial services firms and corporates can expect over the next few years.

    This includes:

    1. the introduction of UK Sustainability Disclosure Requirements (which will feed into a green "labelling" system);

    2. a UK Green Taxonomy; and

    3. new stewardship requirements.

    Each of these is looked at in more detail below.

    Who should read this briefing?

    This briefing will summarise the proposals set out in the Roadmap which will affect UK corporates, UK asset managers and UK asset owners.

    Top 4 immediate actions

    1. Determine whether you are in scope.

    2. If in scope, consider how the sustainability disclosure requirements and taxonomy proposals will apply to you.

    3. Gap analyse what your current strategy, governance, policies, processes and ESG data looks like against the Government proposals set out below (our summary table below has been prepared to help).

    4. Speak to Ashurst to determine likely timing and how to establish a sustainable disclosure requirement / taxonomy implementation plan.. The annexes at the end of this briefing set out key considerations and steps for firms.


    Details on UK sustainability disclosure requirements have been hotly anticipated for quite some time, particularly after a number of speeches and developments in this area. The UK currently lags behind its closest neighbour, the EU, with respect to requirements on ESG disclosures for the finance sector. The EU is now well-advanced on the path towards sustainability related disclosures and the development of a taxonomy as a result of the EU Sustainable Finance Disclosure Regulation ("SFDR") and the Taxonomy Regulation, respectively, both of which have entered into force. The SFDR applied from March 2021 and the first disclosures under the Taxonomy Regulation will be calculated from next year.

    Neither of these regulations apply in the UK (or at least not directly) as they were not onshored following Brexit. This means it is an area where the UK is free to forge its own policy. The Roadmap sets out where the UK is heading and importantly how much it intends to diverge from the EU.

    At its base, the UK agrees with the EU that ESG disclosures are needed and sustainability ought to be included in the investment process.

    "Investors and businesses must have the information they need to understand the full range of environmental risks they face and create. That information should be a key component of every investment decision and the strategy of every business. Climate and environmental considerations should be central to the decision making process of every UK board and every investor's risk and return calculations." Rt Hon Rishi Sunak MP, Chancellor of the Exchequer

    The Government expects that the proposals in the Roadmap will have three distinct effects:

    1. informing investors and consumers – the proposals will address the information gap for market participants by providing a flow of decision-useful information on environmental sustainability from corporates;

    2. acting on ESG information – the proposals will set out requirements that sustainability information is "mainstreamed" into business and financial decisions; and

    3. shifting financial flows – the effect of (1) and (2) is expected to result in a change in financial flows across the economy to align with the UK's net zero commitments and wider environmental goals.

    The Government also suggests that the proposals in the Roadmap will reduce the likelihood of greenwashing i.e. the misleading or unsubstantiated claims about environmental performance by businesses or in financial products.

    1. Sustainability Disclosure Requirements

    There are a number of existing sustainability disclosures that exist both in the UK and in other jurisdictions but they are often inconsistent.

    In the UK the Chancellor recently announced that the UK would implement Sustainability Disclosure Requirements ("SDR") to create an integrated framework for "decision-useful disclosures". The Roadmap provides further details.

    Who would this apply to?

    The Roadmap sets out that SDR will apply in three ways:

    1. Corporate disclosures – new requirements to make sustainability disclosures will apply to companies (including but not limited to FS companies). There will be an overlap (like the EU SFDR) with the UK Green Taxonomy. The scope and the timing of requirements for companies, and the reporting detail, will be determined following consultation. It is likely that the corporate disclosure requirements will be based on standards to be set by the International Financial Reporting Standards Foundation which is establishing the International Sustainability Standards Board (ISSB). The ISSB will develop global baseline reporting standards for sustainability that build on the four pillars of the Taskforce on Climate related Financial Disclosures (TCFD) reporting standards. The ISSB will provide granular reporting standards. These standards are expected to be developed in 2022.

    2. Asset managers and asset owner disclosures – new requirements on asset managers and asset owners (including occupational pension schemes) to disclose how these take sustainability into account. We would expect that these are likely to be based on the key principles that were set out in the Dear Chair letter to Authorised ESG and Sustainable Investment Funds. A key focus of the FCA is how firms substantiate ESG claims that they make.

    3. Investment product disclosures – new requirements for creators (i.e. "manufacturers") of investment products on its sustainability impact and relevant financial risks. This is what the UK Government expects will form the basis of a "green label' system". This will be developed by the FCA and HM Treasury. The labels are expected to help consumers select investment products based on "sustainability characteristics" of products (which will be supported by the SDR). There is a Discussion Paper due on this in Autumn 2021.

    What information would need to be disclosed under SDR?

    The Roadmap sets out further detail of what will be required to be disclosed under the SDR., and follows the four pillars of the TCFD framework. In summary, disclosures will relate to:

    corporatesasset managers and asset ownersinvestment products



    Governance around sustainability-related risks, opportunities, and impacts Governance around sustainability-related risks, opportunities and impacts, and the implications for investment policies, strategies and outcomes  Governance around sustainability-related risks, opportunities and impacts, and the implications for investment products



    Actual and potential implications of sustainability-related risks, opportunities and impacts for the organisation’s businesses, strategy, and financial planning Actual and potential implications of sustainability related risks, opportunities and impacts for the organisation’s investment policies, strategies, and outcomesActual and potential implications of sustainability related risks, opportunities and impacts for investment outcomes


    Risk Management

    Processes used to identify, assess, and manage sustainability-related risks, opportunities, and impacts Processes used to identify, assess, and manage sustainability-related risks, opportunities and impacts, and the implications for the organisation’s investment policies, strategies, and outcomesProcesses used to identify, assess, and manage sustainability-related risks, opportunities and impacts at product level




    Metrics and Targets

    • Metrics and targets used to assess and manage relevant sustainability-related risks, opportunities, and impacts .
    • Performance against targets
    • Taxonomy alignment and relevant supporting information
    • Metrics and targets used to assess and manage relevant sustainability-related risks, opportunities and impacts, and implications for the organisation’s investment policies, strategies, and outcomes.
    • Performance against targets (where relevant)
    • Taxonomy alignment and relevant supporting information based on underlying investments
    • Product-level metrics and performance indicators on sustainability-related risks, opportunities, and impacts.
    • Performance against targets (where relevant)
    • Product-level Taxonomy alignment and relevant supporting information based on underlying investments


    Transition Plans

    • The Government also expects "transition plans" to be commonplace across the economy and published by firms under SDR proposals (on a comply or explain basis).
    • The Government acknowledges that there is no standard form for transition plans but best practice is being developed (including by TCFD, and other groups).

     Unlike the SFDR, the SDR does not introduce categories and requirements for funds (namely article 8 funds (i.e. funds that promote, among other characteristics, environmental or social characteristics, or a combination of those characteristics) and article 9 funds (i.e. funds that have sustainable investment as their objective)). Given the challenges experienced in the industry as to how these labels work in practice, the UK government can be perhaps forgiven.

    What is the timing of implementation of these disclosures?

     BY 20222022-20232023-20242025

    Corporate disclosures

    UK registered companies (which will include FS firms)

    TCFD for certain financial companies

    Mandatory disclosure requirements in annual report to cover:

    • Green Taxonomy
    • ISSB standards for most economically significant companies
    • Voluntary disclosures for other companies

    Mandatory disclosure requirements in annual report to cover:

    • Green Taxonomy
    • ISSB standards,
      for all other companies

    SDR framework for companies

    UK listed companies

    TCFD for premium listed issuers

    Mandatory disclosure requirements in annual report to cover:

    • Green Taxonomy
    • ISSB standards
     TCFD for standard listed issuers
    Asset manager and asset owners Asset managers, life insurers providing investment products and FCA regulated pension schemesTCFD via FCA Rules
    Consultation on potential mandatory sustainability related disclosures
    Subject to 2022 consultation, mandatory sustainability-related disclosures
    Discussion paper on SDR disclosures November 2021 Mandatory disclosure requirements incorporating Green Taxonomy disclosures to be presented in sustainability report referenced in annual report
     For funds >£5bnFor funds >£1bn 
    Investment products
    Investment productsTCFD via FCA rules
    Consultation on potential mandatory product level sustainability related disclosures
    Consultation on potential mandatory sustainability related disclosures
    Sustainable investment labelsDiscussion paper on consumer facing product level SDR disclosures November 2021
     Discussion paper on sustainable investment labelling regime in November 2021Consultation on potential mandatory sustainability related labels for investment productsSubject to 2022 consultation, mandatory sustainability related labels for investment products 
    Financial advisorsFinancial advisors  Subject to consultation, potential requirements including on how sustainability matters are taken into account in investment advice


    ESG data providers

    Like the European Commission, the UK Government is considering whether ESG data providers should be brought within the regulatory perimeter (which we would expect to look similar to the regulation of benchmark administrators or credit rating agencies). This reflects the Government's expectation of the increasing importance of ESG data on financial markets.

    2. The UK Taxonomy

    The Government previously announced that it aims to establish a UK Taxonomy by the end of 2022. This follows the establishment of a taxonomy by the EU under the Taxonomy Regulation, which is already in force and begins to apply from early next year and is intended to provide an EU-wide common classification system for financial services firms and investors..

    Like the EU Taxonomy, the UK Taxonomy will set out the criteria which specific economic activities must meet to be considered to be "environmentally sustainable" and therefore UK Taxonomy aligned. The UK Taxonomy will (as currently set out) follow the same framework as the EU Taxonomy.

    How it works

    There are six proposed environmental objectives set out under the UK Taxonomy which match those in the EU Taxonomy regulation:

    1. Climate change mitigation – stabilisation of greenhouse gas emissions consistent with the Paris Agreement and net zero by 2050;

    2. Climate change adaptation – reducing the risk of adverse impact of current or future climate change on an economic activity, people, nature, or assets;

    3. Sustainable use and protection of water and marine resources – contribution to the good environmental status of bodies of water or marine resources or preventing their deterioration;

    4. Transition to a circular economy – maintaining the value of products, materials and resources for as long as possible, thereby reducing the environmental impacts of their use;

    5. Pollution prevention and control – including preventing and reducing emissions or adverse impacts on health, improving levels of air, water and soil quality;

    6. Protection and restoration of biodiversity and ecosystems – protecting, conserving or restoring biodiversity or to achieving the good condition of ecosystems, or preventing their deterioration.

    These environmental objectives will be underpinned by a set of detailed standards, known as Technical Screening Criteria (TSC) the establishment of which will be assisted by the Green Technical Advisory Group (see our briefing here).

    To be UK Taxonomy aligned an economic activity must:

    1. make a substantial contribution to an environmental objective (set out above);

    2. do no significant harm to the other objectives; and

    3. meet a set of minimum safeguards (i.e. alignment with OECD Guidelines for multinational enterprises and the UN Guiding Principles on Business and Human Rights).

    Taxonomy alignment will then be measured with respect to the revenue from each of these activities.

    This largely follows the framework set out under the EU Taxonomy.

    How does the taxonomy work for "transitional" activities?

    The UK Taxonomy recognises economic activities which are working to meet environmental objectives (even if they are not doing so now). This is done in two ways. Either:

    1. Transitional activities – the TSCs will set the threshold for taxonomy alignment in sectors where economic activity cannot be done in a way which is aligned with net zero ambitions. In this case, the UK Taxonomy alignment will be in reference to best in sector emissions level. (Cement manufacturing is given as an example of this.)

    2. Investment – companies can also report the proportion of their capital expenditure which is UK Taxonomy aligned which will reflect the company's investment in producing green activities in the future.

    How does the UK Taxonomy work for "enabling" activities?

    The UK Taxonomy will also include enabling substantial contributions to environmental objectives in other sectors, but which are not yet sustainable themselves. The example given here is the manufacture of components for wind turbines, but another often-cited example may be lithium batteries for electric vehicles.

    Can companies which are not in scope of SDR use the UK Taxonomy?

    Companies can voluntarily report against the UK Taxonomy (and we expect the Government to encourage this). Although given some of the ESG risks that arise this may be less attractive to some market participants. (See our briefing on ESG litigation risks here.)

    When will UK Taxonomy alignment disclosures be required?

    Like the EU, the UK Taxonomy will be staggered in its application. The TSC for climate change mitigation and climate change adaptation will come into force first through legislation that is expected by the end of 2022. The other four objectives will follow in 2023.

    In practice, this means that Taxonomy alignment disclosures are difficult to understand for the layperson and companies will need to be clear about the strategy they intend to adopt given these disclosure requirements.

    Will UK Taxonomy diverge from the EU Taxonomy?

    It is likely that the UK Taxonomy will have some divergence from the EU Taxonomy. In the Roadmap, the Government has already identified energy production as an area where clarity is required as a priority. In particular, what the role of nuclear energy should be in the UK's Taxonomy.

    Reading between the lines, the Roadmap would seem to suggest that the Government would like to see nuclear energy included in the UK Taxonomy (under the EU Taxonomy, the decision on how to classify nuclear power has been delayed). The Government has established an Energy Working Group to help with the development of the TSCs in this area.

    3. Stewardship Requirements

    The proposals relating to stewardship are less specific in the Roadmap. The Government emphasises the important role of stewardship engagement to improve returns for investment and long term management of risks presented by climate and environmental change. The Government expects the asset management and pension industries to use the information that will be generated by the SDR to transition to net zero strategies.

    To achieve this the Government expects asset managers and pension providers to take ESG considerations into their investment decision making, engagement strategies and voting practices.

    The Government cites a number of stewardship standards such as:

    1. UK Stewardship Code 2020.

    2. The Asset Management Taskforce Stewardship Report.

    3. The Taskforce on Pension Scheme Voting and Implementation report.

    4. FCA priorities on investor stewardship.

    The Government pins much of its aim to improve stewardship on the availability of ESG data under its SDR proposals. It also sets out clearly that it expects investment and pension firms to:

    1. progress work on stewardship within their organisation; apply to become a signatory of the UK Stewardship Code 2020; and encourage or require their service providers to sign up to the Code.

    2. Take into account the information generated by SDR when allocating capital.

    3. Actively monitor, encourage, and challenge companies by using their rights and direct/indirect influence to promote long-term, sustainable value generation (which may include withholding capital or divestment).

    4. Be transparent about their own and their service providers’ engagement and voting, including by publishing easily accessible, high-quality quantitative and narrative reporting.

    5. Provide leadership, for example by joining a Race to Zero-accredited net zero initiative for the financial sector, and thereby joining GFANZ. They should back up this commitment by publishing by the end of 2022 a high-quality transition plan. This should include near term science-based targets and set out their organisation’s pathway to net zero financed emissions.

    The Government intends to assess progress in this area but has not yet gone as far as to mandate any of the above through legislative change.



     1.Name/acronymSustainable Finance Disclosure Regulation / SFDR
    (Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector)
    Sustainability Disclosure Requirements / SDR
     2.Scope"Financial market participants" or "financial adviser":
    (a) (EU) insurance undertakings which make available an insurance‐based investment product (IBIP) or which provides insurance advice with regard to IBIPs;
    (b) (EU) MiFID investment firms which provide portfolio management or provides investment advice;
    (c) (EU) an institution for occupational retirement provision (IORP);
    (d) (EU) a manufacturer of a pension product;
    (e) (EU or non-EU marketing into EU) an alternative investment fund manager (AIFM) and/or which provides investment advice;
    (f) (EU) a pension provider;
    (g) (EU) UCITS management company and/or which provides investment advice; or
    (h) (EU) bank which provides portfolio management or provides investment advice; or
    (i) (EU) insurance intermediary which provides insurance advice with regard to IBIPs
    1. Corporates – FS and non-FS
    2. Asset Managers
    3. Asset owners that manage or administer assets on behalf of clients and consumers
    4. Manufacturers of investment products
     3.Entity level disclosuresYes (article 3, 4, 5 7)Yes
     4.Product level disclosures Yes – article 6, article 8 and article 9Yes – green "labelling" to be developed
     5.Taxonomy related disclosures?YesYes



    Type of entity/sourcecorporatesbanksmifid investment firmsaifmucits mancoinsurancepension provider
    SFDRNFRD companiesYes -EU basedYes - EU basedYes – EU and non-EU marketing into EUYes-EU basedYes-EU basedYes-EU based
    Taxonomy RegulationNFRD companies
    Soon to be CSRD companies
    Yes -EU basedYes -EU basedYes – EU and non-EU marketing into EUYes -EU basedYes -EU based
    Yes -EU based
     TCFD disclosures
    • Premium listed issuers
    • Standard listed issuers
    Only if Premium listed or Standard listed issuer Only if Premium listed or Standard listed issuerLarge asset managers onlyNo NoYes
    Sustainability Disclosure Requirements YesNo (only as corporates)No (only as corporates) YesYesYes (life insurer) Yes

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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