Green Financing: UK’s Roadmap To Sustainable Investing
Sustainability is becoming an essential part in many aspects of our lives due to climate change. For the financial sector, they have an important role to play in the United Kingdom’s journey towards hitting Net Zero emissions by 2050.
Following the release of the UK Government’s paper in October 2021 which laid out its roadmap to becoming a world leader in sustainable investing, the finance and investment industries will need to adapt quickly to ensure that the sector is resilient to climate change.
What is sustainable investing?
Sustainable investing (also known as ESG investing) is a form of investing that focuses on environmental, social and governance (ESG) factors before providing finance to businesses.
The goal of sustainable investing is to ensure investment decisions promote a positive impact on society, corporate responsibility and long-term financial return. This means that financial institutions are not focusing on the short-term, but on the contribution, they provide to society.
What is sustainable finance?
Sustainable finance involves taking ESG considerations into account when making investment decisions in the financial sector. Financial services businesses who make decisions around sustainable finance can lead to long-term investments in sustainable activities and projects.
There are many types of sustainable finance that can advance societal interests as well as promoting growth and development. Some of the types of sustainable finance include:
- Sustainable investment funds – Investments that are allocated towards projects that ethically make a difference to society and improve energy efficiency
- Green and social bonds – Organisations that offer debt instruments to fund socially responsible projects
- Social venture capital – Companies whose purpose is to invest in solving social and environmental issues
- Green loans – Involves financing investment in energy efficiency products, vehicles and other eco-friendly items
Asset finance can provide a good opportunity for businesses to invest sustainably in financing products that would otherwise put huge pressure on a company’s cash flow. If you’re looking to upgrade your fleet of vehicles, then using asset finance to pay for electric vehicles can be a good way of investing in transport that is environmentally friendly.
What are the requirements of the UK’s roadmap to sustainability in the finance sector?
There are requirements in the UK’s roadmap to sustainability in the finance sector that will affect private sector businesses. The introduction of the UK Sustainability Disclosure Requirements has meant firms will be required to report on how sustainable their products are as well as the relevant financial risks and opportunities.
The government has also introduced the UK Green Taxonomy. The taxonomy sets out six criteria to ensure that specific economic activities must be met to ensure companies are environmentally sustainable. The six environment objected listed in the taxonomy include:
- Climate change mitigation
- Climate change adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
Stewardship is another area that is covered in the UK’s roadmap towards sustainable investing. The firms that operate in the UK’s pensions and investment sectors are expected to act as responsible stewards of capital by:
- Progressing work on stewardship in their own organisations while also signing up and encouraging them to sign the code
- Factoring in the data generated by the SDR into their own investment decisions
- Actively monitoring, encouraging and challenging companies by using their rights and direct and indirect influence to promote long-term, sustainable value generation
- Being transparent about their own and service providers engagement, through clear and transparent reporting
- Providing leadership and publishing their transition plans to Net Zero
How will the UK’s green financing roadmap affect businesses in the finance sector?
The UK’s green financing roadmap is going to have a major impact on businesses in the finance sector. Sustainability is going to be crucial for companies as they will have to put together and publish their plans for climate transition.
There are three phases to the UK’s green financing roadmap, which affects how much firms have to disclose. Also, it can affect investors who engage with investee companies on capital, as well as climate and sustainability issues.
Investment and financial firms who have not considered sustainability in their products will need to implement the SDR requirements soon before they become mandatory.
Why is sustainable investing important?
Sustainable investing is important as it can contribute to helping make the world a better place for everyone. It allows investors to put their capital towards making a positive influence on society, while also taking a long-term approach to solving social and environmental issues.
There are benefits for both the investor and society when using sustainable investing. How you invest can not only have a big impact on helping nations and companies grow, but also creating positive change and progress for society.
Sustainability is the main theme when it comes to making the UK’s finance sector reach its Net Zero emission targets by 2050. The roadmap is a glimpse into the sustainable future that lies ahead for the investment and financial services industries.
You can speak to our team of experts at White Oak who can help navigate you around sustainable financing and investing for your business