The Roadmap to FCA Sustainability Disclosure Requirements

Further to the government's Roadmap to Sustainable Finance on 3 November 2021 the FCA published a discussion paper (DP21/4) on Sustainability Disclosure Requirements (SDR) and investment product labels.

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Are you within the pension and investments sector or own a UK business receiving or seeking investment? The government’s ‘Greening Finance: A Roadmap to Sustainable Investing’ document likely has huge implications for you. Luckily though, it’s simpler than it might seem.

Read the full government strategy here or summarised version here.

The key takeaway is that pension funds, investment products and companies will have to report under the Sustainability Disclosure Requirements (‘SDR’) currently being developed by the government. 

The SDR builds on the UK implementation of the Taskforce on Climate-related Financial Disclosures (‘TCFD’) reporting framework which some organisations may already be working toward.

Under SDR certain companies will be required to disclose the percentage of their capital expenditure, operational expenditure and turnover that relates to UK Green Taxonomy (environmental sustainability criteria) aligned activities, and their Net Zero transition plans. This will provide investors and consumers with an indicator of a company’s current environmental performance. Informed by this reliable data, investment product providers can then disclose the extent to which their products are Taxonomy-aligned. This enables investors to identify the investment products which are making a substantial contribution to environmental objectives and supports ESG reporting.

The government is expected to consult on potential mandatory sustainability-related disclosures in 2022/23 but says it expects to see the publication of climate transition plans become “the norm across the economy”. So although this is not yet a legal requirement, companies and the financial sector are being strongly encouraged to publish transition plans now.

How to develop a Net Zero transition plan

Step 1: Measure Your Baseline Carbon Footprint
The only way you can plan your net zero transition is to first understand your organisation’s current carbon footprint. Your footprint will highlight carbon hotspots where significant reductions can be realised.

Step 2: Develop Your Carbon Reduction Plan

Your carbon footprint will highlight high-carbon areas of the business which will help you allocate time and funding to high impact reduction initiatives first, followed by lower impact initiatives down the line. To reach Net Zero, you may need to develop some creative solutions for areas of the business that are difficult to change quickly. 

Step 3: Offset Your Carbon Footprint

Whilst this is optional, it is a good idea to highlight your commitment to carbon reduction by offsetting your current carbon footprint and certifying as carbon neutral. This can form part of your plan but is simply an interim measure whilst you work toward becoming Net Zero. Purchasing UN certified carbon credits in line with the Sustainable Development Goals will support social, as well as environmental, initiatives and improve ESG scores further.

Step 4: Share Your Plan and Engage

Share your plan publicly so that customers, suppliers and investors can view and support it. Having this plan in place will support with marketing, completing bids/tenders, attracting customers and gaining investment. It is essential to engage your employees in your Net Zero journey too, through awareness workshops and by actively encouraging ideas and action.

Step 5: Take Action

Start to action your Net Zero transition plan and measure your carbon footprint annually to track your progress.

If your organisation or clients are looking to get ahead of the curve, contact our Net Zero Business Advisory team.

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