Friday Highlight  

What does the UK govt's green recovery plans mean for investments?

The EU taxonomy is seeking to solve this problem by adopting a consistent language for sustainable financial products and is receiving much market endorsement. 

The EU taxonomy is included in UK legislation post-Brexit, but the UK government is setting up an advisory group to review the metrics to ensure that they are right for the UK market (including diverging from the EU taxonomy as necessary). 

In any event, it will be essential that there is international consensus for the taxonomy going forward, and the UK intends to play a role in that process. 

In relation to consumer investments, either directly in the companies listed on a stock market or through investment funds, it is expected that climate related reporting will also be enhanced in the future. 

A budding market

Indeed, reporting recommendations, published by the Task Force on Climate-related Financial Disclosures in June 2017, will become mandatory by 2025.  This will ensure that all companies disclose on climate-related financial disclosures in a consistent manner.  

Green finance remains a nascent market.  The Loan Markets Association and the International Capital Market Association are publishing guidelines as to how financial products should be structured but these remain light-touch and non-binding.  

Until there is more standardisation across the market for green finance, it is difficult to see how there can be clear policing of mis-labelling by institutions like the FCA, which needs to be able to operate fairly and consistently to do its job properly. 

The banks and issuers of green financial products should ensure that they focus on ensuring the integrity of green finance. 

Failure to do so puts their reputations at stake. In addition, any whiff of market abuse will certainly invite larger amounts of regulation going forward.  

Much like building a house where you must build solid foundations before laying the first brick, the UK government must ensure that the structures for market leading green finance are built on strong policies and strategies. 

Certainly, the green finance report highlights that there is much ongoing activity in setting up the relevant frameworks and more to come so that the UK can take advantage of the opportunity associated with green finance. 

Victoria Judd is a multi-specialist financing lawyer at Pillsbury Winthrop Shaw Pittman