03 November 2021

On 18 October 2021, HM Treasury published a policy paper entitled Greening Finance: A Roadmap to Sustainable Investing (the 'Roadmap'). It contains further detail on the proposed Sustainability Disclosure Requirements and UK Green Taxonomy, as well as setting out the government’s expectations for the pensions and investment sectors in relation to stewardship.

Sustainability Disclosure Requirements (SDR)

The Sustainability Disclosure Requirements were announced by Chancellor Rishi Sunak in July 2021 and will build on the UK’s Task Force on Climate-related Financial Disclosures implementation. It will cover three types of disclosure relating to:

  • Corporates: new requirements will, subject to consultation, be introduced which will comprise reporting under proposed international standards and reporting of environmental impact using the UK Green Taxonomy
  • Asset managers and owners: new requirements will require asset managers and owners to disclose how they take sustainability into account to help consumers determine whether their assets are managed according to their sustainability preferences
  • Investment products: new requirements will require creators of investment products to report on the products’ sustainability impact and relevant financial risks and opportunities. This information will form the basis of a new sustainable investment labelling regime to help consumers navigate the range of investment products available to them

The SDR will use the same framework and metrics across the economy and will integrate the standards developed by the International Sustainability Standards Board as well as the TCFD’s ‘four pillars’ (being Strategy, Governance, Risk Management, and Metrics and Targets).

SDR will go beyond the FCA’s existing expectations around ESG and sustainable investment funds in two ways. Firstly, asset managers and owners and investment products will be required to substantiate ESG claims in a way that is comparable between products and accessible to clients and customers. Secondly, SDR will require disclosure against minimum safeguards which are set by the UK’s Green Taxonomy.

SDR will also require disclosures on organisations’ transition plans on aligning with the government’s commitment to achieve net zero by 2050 or otherwise to provide an explanation if they have not done so. Initially, it will only require certain firms to publish transition plans. However, the government hopes for more widespread adoption as standards for transition plans emerge.

The Roadmap also sets out an implementation timescale for SDR. For instance, in relation to asset managers and asset owners, it expects a consultation on potential mandatory sustainability-related disclosures to take place within 1-2 years.

UK Green Taxonomy

The Roadmap also expands on plans for a UK Green Taxonomy (the 'Taxonomy').

The Taxonomy contains six environmental objectives: (i) climate change mitigation; (ii) climate change adaptation; (iii) sustainable use and protection of water and marine resources; (iv) transition to a circular economy; (v) pollution prevention and control; (vi) protection and restoration of biodiversity and ecosystems. Technical Screening Criteria ('TSC') will be developed in respect of each of these.

In order to be Taxonomy-aligned an economic activity must:

  1. make a substantial contribution to one of the abovementioned six environmental objectives (the criteria for this will be set out in the TSC)
  2. not do significant harm to other objectives (also defined in the TSC)
  3. meet a set of minimum safeguards (aligned with the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights).

Reporting against the Taxonomy will form part of corporate obligations under SDR and will provide investors with an idea of that company’s current environmental performance and investment in sustainable activities. Providers of investment products will then disclose the extent to which those products are Taxonomy-aligned, based on their constituent assets. Disclosure requirements for corporates will come into force prior to those for investment products, allowing the former to feed into the latter in line with the sequenced approach of SDR.

Currently, the government is reviewing screening criteria for two of the abovementioned environmental objectives (climate change mitigation and climate change adaptation). It expects to consult on UK draft criteria in Q1 2022, legislating by the end of 2022. The government will also review the Taxonomy Regulation’s effectiveness every three years and expects to consult on the expansion of the climate TSCs and standards for the remaining four environmental objectives in Q1 2023.


The Roadmap contains a further section on the importance of stewardship, citing the Stewardship Code 2020, the Asset Management Taskforce’s Stewardship report (November 2020), the Taskforce on Pension Scheme Voting and Implementation Report (September 2021) and FCA priorities on investor stewardship as part of the UK’s stewardship agenda.

The government expects the UK’s pensions and investment sectors to use the information generated by the SDR to deliver on their responsibilities as stewards of capital. The government believes that in practice, businesses in these sectors should seek to integrate ESG considerations into (i) investment decision-making, (ii) monitoring and engagement strategies, (iii) escalation and collaboration and (iv) voting practices.

The government further states that it expects the UK’s pensions and investment sectors 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.
  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 will assess progress on these five points at the end of 2023.

What next?

By way of summary, the key developments to look out for in this area are as follows:

  • November 2021 – discussion papers on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
  • First quarter 2022 – consultation on two of the environmental objectives under the Taxonomy (climate change mitigation and climate change adaptation)
  • 2022 – consultations on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
  • End of 2022 – legislation on draft TSCs for climate change mitigation and climate change adaptation
  • End of 2022 – government expects pensions and investment sector organisations to have published a high-quality net zero transition plan
  • First quarter 2023 – government to consult on expansion of TSCs and standards for remaining four environmental objectives under the Taxonomy
  • End of 2023 – government to assess progress on its five expectations for stewardship within the UK pensions and investment sectors

For further information, the full report can be accessed here. If you would like to discuss this in more detail, please contact Tom Dunn or your usual Burges Salmon contact.

Key contact

Tom Dunn

Tom Dunn Partner

  • Head of Regulated Funds and Financial Services
  • Regulated Funds
  • Financial Services

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