UK pension schemes face new requirements to disclose sustainability-related information, but these will “streamline” existing climate reporting duties and also cover corporates and financial services firms in the country, according to government announcements today.
The “Sustainability Disclosure Requirements” (SDR) regime was referred to in a speech by Chancellor Rishi Sunak this morning, in the context of plans to shore up the UK’s green finance leadership credentials.
“We’re launching new requirements for businesses and financial products to disclose sustainability information,” he said.
According to a supporting government strategy document, the SDR – described as “integrated” – would require businesses to disclose their risks and opportunities from, and impact on, the climate and the environment.
“This economy-wide regime will cover real-economy corporates, financial services firms, and pension schemes,” the document stated.
Pension schemes already face requirements related to the Task Force on Climate-related Financial Disclosures (TCFD) framework, and related rules for asset managers and corporates are also being prepared.
According to an announcement from the Treasury today, the new SDR – will “bring together and streamline existing climate reporting requirements and go further to ensure consumers and investors have the information they need to make informed investment decisions and drive positive environmental impact”.
According to the Treasury announcement, the government will publish a roadmap setting out its approach to sustainability disclosures ahead of COP26 in November.
The Treasury also said the government would work with the financial regulator to create a new sustainable investment label “so that consumers can clearly compare the impacts and sustainability of their investments for the first time”.
“We will draw from best practice globally and seek to give real leadership”
John Glen, economic secretary to the Treasury
The announcement of the SDR appears to have caught at least some in the pensions and investment industry off guard, triggering questions about whether it represented the UK equivalent of the EU sustainable finance disclosures regulation (SFDR). The EU is also introducing new sustainability-related reporting legislation for corporates.
Speaking about the new UK SDR at a Pensions & Lifetime Savings Association (PLSA) conference today, John Glen, economic secretary to the Treasury, said the government had drawn heavily on the work that had been done in other jurisdictions, adding that the EU had “started the work”.
“Our driver is not to align to any particular other jurisdiction but to look at what it takes to be a world leader on transparency and accountability,” he added.
“And for that we will draw from best practice globally and seek to give real leadership, particularly in the context of the role we have as chairing COP26.”
Ben Caldecott, director of the University of Oxford sustainable finance programme and director of the pension fund-backed Centre for Greening Finance & Investment, said the new integrated Sustainability Disclosures Requirements were “a hugely positive step”.
“Requiring firms to report on the positive and negative impacts they are having on the climate and environment is an essential complement to risk focused disclosures pioneered by the TCFD.”
The Chancellor’s speech followed the publication yesterday of the UK government’s ‘Green Financing Framework’, which sets out the types of projects that will be financed by proceeds from its sovereign green bond sales.
The inaugural green Gilt is due to be issued in September, subject to market conditions, with issuance of at least £15bn planned in the 2021-2022 financial year.
Nigel Peaple, director, policy and advocacy at the PLSA, said the government announcements addressed many of the recommendations the association had previously made to help pension funds respond to the climate change challenge.
Green Gilts would be particularly appealing for funded defined benefit pension schemes as they were lower risk when compared to investing directly in green energy projects,” he said. “The plan to raise £15bn this year is a very good start.”
He added: “We also support the proposals to ensure climate change considerations are factored in across the investment chain, in particular the development of UK Sustainable Disclosure Requirements on companies, and that the government will use COP26 to achieve global standards.”
The government did not respond to questions from IPE about the SDR by the time of publication.