Treasury to crack down on greenwashing

The government has appointed a 19-member body to advise on the creation of a ‘green taxonomy’ for sustainable investment, while covid-delayed climate stress tests on banks will begin shortly.

Green Technical Advisory Group (GTAG), chaired by the executive director of the Green Finance Institute, Ingrid Holmes, will “help clamp down on greenwashing – unsubstantiated or exaggerated claims that an investment is environmentally friendly – and make it easier for investors and consumers to understand how a firm is impacting the environment”, according to today’s announcement from the Treasury.

Set to meet for the first time later this month, it will provide independent and non-binding advice, with initial recommendations expected in September. It is expected to run for at least two years.

It comes after sales of sustainable investments to UK retail investors tripled between 2019 and 2020, according to the department, reflecting public interest in the environment and new business opportunities being opened up by the transition to net zero. The taxonomy should help both consumers and investment managers make more informed decisions about where their money is going.

However, last week the Trades Union Congress said that the UK ranks sixth in the G7 on investment in the infrastructure needed to meet the 2050 goal.

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“We want investors and businesses to play their part in greening our economy and transitioning to net zero, so it’s crucial we have a clear common definition of what green means. A UK green taxonomy will provide better data on the environmental impact of firms, supporting investors, businesses and consumers to make green financial decisions and accelerating the transition to net zero,” said economic secretary to the Treasury John Glen.

Holmes said the group would work towards “implementing a robust, science-based taxonomy that is adapted to the specific needs of the UK context, and works for all stakeholders”.

The 19-member GTAG represents the financial services, business, experts such as the Environment Agency’s green finance manager Anna Bond and the Climate Change Committee’s chief economist Mike Thompson, academia and environmental NGOs the Aldersgate Group, WWF and E3G. They will sit alongside observers from the Treasury itself, the Financial Conduct Authority, the Bank of England and “other relevant” government departments and regulators, according to the statement.

However, it left unmentioned that the group’s formation is simply a move towards implementing an EU law that was published two years ago, known as the Taxonomy Regulation.

The UK is far behind the pace set by Brussels. An equivalent 57-member body, the Platform on Sustainable Finance, first met in October. NGOs also have a comparatively greater voice within it, with members including WWF, Transport and Environment, Chemsec, World Green Building Council, The Institute for European Environmental Policy, Finance Watch, consumer group BEUC and the European Trade Union Confederation.

Five of them stormed out in April, when the European Commission published a delegated act that classified crop-based biomass and wood burning as sustainable. They accused it of caving in to political pressure, though they returned recently after being promised more transparency.

GTAG will be joined by a subsidiary Energy Working Group to advise on technologies such as hydrogen, carbon capture and nuclear power – and possibly others, as the need arises.

The chancellor Rishi Sunak first announced the UK would implement a green taxonomy in November, part of wider plans to position the UK at the forefront of green finance that include plans to issue the first green government bond later this year.

Stress tests

Meanwhile, the Bank of England published what it described as the “key elements” of its first climate stress tests for major banks and insurers yesterday. The procedure, which will be conducted every other year from now on, will explore both risks arising from higher temperatures and those from the “significant structural changes to the economy needed to achieve net zero emissions”.

The objectives are to establish the scale of the firms’ exposures, which are “currently opaque”, according to the central bank and highlight where action is needed to reform business models and improve risk management. For the moment at least, the process is exploratory and will not be used to set capital requirements, though it may inform the Bank of England’s approach to regulation going forward.

The results are due in May 2022.

“Today’s exercise will help us size the risks from climate change for both the largest banks and insurers as well as the financial system as a whole. It’s a novel exercise as firms will have to engage closely with their counterparties in order to get detailed data on those counterparties’ exposures to these risks. It will stretch the time horizon over which the banks and insurers assess these risks and it will require them to build up their own scenario analysis capabilities, helping them to understand better how they are exposed under different potential climate pathways. The end result will be more robust management of climate related financial risks across the sector,” said governor Andrew Bailey.

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