Digging deeper: Responsible Investment marketplace

An overview of the sustainable investing regulations affecting UK financial services
January 2022

Graham Finlay

Vice President, Strategic & Technical Sales

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article are reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.

Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • Explain the phases of HM Treasury’s roadmap to sustainable investing
  • List all the environmental objectives established by EU Taxonomy
  • Describe the four thematic areas of disclosure within the Task Force for Climate-related Financial Disclosures (TCFD) recommendations

Since governments around the world, including the UK, pledged to decarbonise economies in line with their commitments to the Paris Agreement in 2015, there has been a realisation that regulation will be a vital component of delivering on these commitments. No longer can sustainability be seen as a niche or optional part of the global financial system.

According to recent research undertaken by the UN PRI (UN Principles for Responsible Investment) there have been over 730 hard and soft law revisions to some 500 policy instruments since 1970, across the world’s 50 largest economies. Over 97% of these policies have been put into force after 2000.

Many of these revisions are focused on supporting, encouraging or requiring investors to consider long-term value drivers, including environmental, social and governance (ESG) factors.

Cumulative number of policy interventions

Cumulative number of policy interventions

 

Source: PRI responsible investment regulation database, note: while this graph shows 2021, the regulation database is only as of August 2021.

Below is a summary of the key elements of the Sustainable Investment policies affecting UK Financial Services. Clicking on the links will download a pdf with full details on each one.

  • In October 2021, HM Treasury published a policy paper titled “Greening Finance: A Roadmap to Sustainable Investing”. The paper outlined their ambitious plan to transform the UK’s financial system. We highlight the plans and a timescale of implementation.
  • The Taxonomy framework is one of the main actions stemming from the European Union (EU) Action Plan on Financing Sustainable Growth (the Action Plan). Read how Taxonomy is important in the classification of sustainable activities.
  • The Task Force on Climate-related Financial Disclosures (TCFD) was created to develop consistent climate-related financial risk disclosures for use by companies, banks and investors in providing information to stakeholders.
  • The UK government are intending to mandate the use of TCFD across the UK economy. Find out more about the FCA Consultation Paper CP21/17 Taskforce on Climate-related Financial Disclosures.
  • The Sustainable Finance Disclosure Regulation came into force in the EU on 10 March 2021, requiring certain ‘Financial Market Participants’ (FMPs) to make environmental, social, and governance (ESG) disclosures to potential and current investors. Find out what implications that has for both asset managers in the EU and also the UK.

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article are reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.

Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

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