17 Nov 2023

UK Climate Policy Briefing - November 2023

Our UK policy briefing aims to highlight the latest developments in UK climate policy directly relevant to NEDs.

This issue covers the six months since our last briefing when the UK Government released its ‘Powering up Britain' strategy, outlining plans for the UK to seize opportunities associated with the net zero transition and improve energy security. Since our last briefing there have been significant developments in the climate policy landscape, most notably the Climate Change Committee’s 2023 Progress Report to Parliament and the recent government U-turn on a number of key net zero targets. Although this has generated much discussion among the business community, particularly around contributing to investment uncertainty, other key initiatives such as those on corporate disclosure and transition planning, continue at pace.

Key takeaways for non-executive directors (NEDs)

  • Recent UK policy announcements, and the reaction to them, have focused on a roll-back of green measures as the Conservative party in government seeks to find clear lines of differentiation before next year’s general election. For companies, this could have important implications for planning and investment. According to the Cambridge Institute for Sustainability Leadership (CISL), in their analysis of the situation, “if the UK wants to attract investment for new green industries, maintain public buy-in and support for changes, keep costs down and minimise disruption it needs to have a clear, transparent and steady approach.”
  • Although overshadowed by the recent announcements, other initiatives of direct relevance to NEDs, such as those around corporate disclosure and transition planning, have continued at pace. On October 9, the Transition Planning Taskforce (TPT) released its Transition Planning Disclosure Framework – and the UK Government intends to consult on making the disclosure of transition plans mandatory for all large companies in the final quarter of 2023. The Financial Conduct Authority (FCA) has set its intention to consult in the first half of 2024 on implementing changes to disclosure rules for listed companies with the aim to align with the Government’s endorsement process.
  • In tandem, under the umbrella of its Sustainability Disclosure Standards (SDS), the UK continues to move towards aligning corporate disclosure with the IFRS’s Sustainability Disclosure Standards under the International Sustainability Standards Board (ISSB). NEDs should consider how to build on existing practices in a way that is consistent with the TPT recommendations and ISSB Standards. This includes establishing processes for disclosing information that is not required by the Taskforce on Climate-Related Financial Disclosures (TCFD) (which will be dismantled next year as the ISSB supersedes it). It will also mean considering interdependencies with other sustainability-related issues, such as nature, where these are material.
  • The October 2023 release of the Competition and Markets Authority’s (CMA) Green Agreements Guidance marks a positive development for climate collaboration between UK businesses, in that it provides greater clarity on the types of environmental sustainability agreements organisations can pursue without risking enforcement action from the competition authority. The guidance reaffirms that businesses can collaborate to create effective environmental sustainability initiatives while avoiding regulatory risks.

Key developments in the UK policy landscape that NEDs need to know about

Open consultations

Scope 3 emissions reporting

  • As promised in the UK Government’s 2023 Green Finance Strategy, a call for evidence on Scope 3 emissions reporting is now live, with a deadline of 14 December.
  • Views are being sought on:
    • The costs, benefits and practicalities of Scope 3 greenhouse gas emissions reporting to help inform the government’s decision on whether to endorse the ISSB standards in the UK
    • The current ‘Streamlined Energy and Carbon Reporting’ (SECR) framework in the UK, to inform a Post-Implementation Review of the policy.

Key external developments

EU Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD)

  • Implemented in 2021 as part of the European Commission’s legislative framework for sustainable finance, the EU Sustainable Finance Disclosure Regulation (SFDR) sets out transparency rules and disclosure regulations for financial market participants (FMPs). Under the EU SFDR, UK-based FMPs offering products or services to the EU are subject to compliance and investor disclosure obligations, as are EU entities marketing services and products to the UK.
  • The EU SFDR is interrelated with the anti-greenwashing requirements under the European Commission’s Taxonomy Regulation and requires sustainability information to be accessible via company websites, in pre-contractual product documents, and in annual reporting.
  • There are currently two open consultations on the implementation of the SFDR which close on December 15.
  • As of January 2023, UK companies with a presence in the EU, including through subsidiaries, must also consider the EU Corporate Sustainability Reporting Directive (CSRD), which will come into force between 2024 and 2028. Building on the preceding Non-Financial Reporting Directive (NFRD) principles, the CSRD requires all reporting companies to provide double materiality analysis - reporting both on how the business is impacted by sustainability issues (“outside-in”) and how the business’s activities impact society and the environment (“inside-out”). The CSRD will also require all sustainability data to be submitted in a standardised digital format subject to “limited third-party assurance.” If a company was already obligated to report under the NFRD, it is required to report under the CSRD.
  • For UK businesses not currently subject to SFDR and/or CSRD, it is important to recognise the likelihood of these regulations expanding and introducing more localised directives, and the inevitable impact across organisational value chains. Companies that do not meet disclosure requirements, or that have poor ESG performance, may face increasing challenges in accessing finance in European markets, as investment decisions become more selective based on the sustainability disclosure information.

Looking ahead

As the UK ramps up for a general election in 2024, the policy positions of the main parties in relation to climate change continue to be fleshed out. Our next issue will summarise what we know so far, and how the picture may develop. We will also reflect on the outcomes of the upcoming UN Climate Conference, COP 28, and what it could mean for UK Policy.

In the meantime, NEDs should look out for the UK government consultation on the mandatory disclosure of transition plans, expected by the end of this year, and a review by the Department for Work and Pensions concerning the extent to which their Stewardship Guidance is being followed, which will see engagement with interested stakeholders on how to clarify fiduciary duty through a series of roundtables and a working group of the Financial Markets and Law Committee.

This content has been created by the Centre for Climate Engagement in collaboration with Chapter Zero.

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