A4S comment on the UK Government’s updated Green Finance Strategy

Responding to the UK Government’s updated Green Finance strategy (GFS) Mobilising Green Investment, experts at Accounting for Sustainability (A4S) welcomed the focus on adoption of global standards, transition plans and nature.

However, experts noted the intention to incorporate impact reporting – signalled in the original launch of the Sustainable Reporting Requirements (SDR)  and seen as key by asset owners – was absent in the update. It will be critical that this is covered in the planned review of the UK’s reporting framework referenced in the strategy.

There is a clear signal to adopt the incoming IFRS Sustainability Disclosure Standards within the strategy, which has been set as ‘subject to review’ when the standards are announced in the coming months. This is a welcome development and aligned with A4S’s call from the global CFO community to adopt global standards. A4S also welcomes the reference to recommendations from the Taskforce on Nature-related Financial Disclosure (TNFD), which will close an important gap, enabling the financial system to understand and allocate resources more effectively to reverse the collapse in biodiversity and ecosystems. The GFS also underlines the importance for the TNFD recommendations to align with those being developed by the International Sustainability Standards Board (ISSB), critical to achieving common global standards.

This aligns with our work with Chief Financial Officers (CFOs) and the wider finance community in highlighting these as essential to implementing net zero goals, but also presenting some of the biggest challenges. The integrity of transition finance is critical to avoid greenwashing and drive real action.  

• Without near term milestones and clear action plans, targets will remain elusive - something that risks being left to future leaders to miss rather than current leaders to deliver upon. A net zero transition plan provides a clear set of practical steps to turn net zero ambition into concrete action across a range of areas. It helps organisations set out interim targets and tracks progress against these.  
• Without high quality data, organisations and investors will be making decisions in the dark. The collection of reliable sustainability data is core to decision making and building trust. Stakeholders are increasingly basing their decisions on the sustainability credentials of an organisation. Data along the full value chain alongside a robust control environment is therefore key to reliable reporting.

In last year’s A4S Finance Leaders’ Sustainability Barometer, we found that there is a gap between sustainability ambitions and the work needed to make them a reality. Less than half of the CFOs surveyed believed their finance team had the skills and competencies for supporting the achievement of their corporate sustainability objectives. To help bridge this gap, A4S has worked with Group CFOs from large organisations across the world to develop the A4S Academy, which is a programme that empowers and equips senior finance professionals to develop and deliver an implementation plan to embed sustainability within their organisations. This year, we are developing partnerships with a number of professional bodies and business schools to scale up access to our globally recognised Essential Guide series which helps finance and accounting professionals to take action.

In the initial Sustainable Reporting Requirements (SDR) announcement (October 2021), the UK Government underlined that their intention was to ensure reporting met the needs of customers as well as investors and signalled an intent to include reporting on impact. However, this appears to have disappeared from the updated statement. It is critical that reporting on impact is part of the planned reporting review referenced in the GFS. An organisation’s impact on the world can quickly ‘bite back’ to hit financial performance, so this needs to be addressed in an organisation’s reports to provide important information to investors, customers, consumers, stakeholders and the public at large.

• The sustainability disclosure requirements were envisioned not only to require information on how an organisation or fund’s performance is affected by the environment, but also how that firm impacts the environment. The 2021 UK Government report ‘Greening Finance: A Roadmap to Sustainable Investing’ stated: “There is a clear need for an effective government-led sustainability disclosures regime which enables the flow of comparable and decision useful information on how companies and financial flows impact – and are impacted by – climate, the environment and broader sustainability factors.” 
• Reporting on impact as well as material risk would also answer the call from investors from the A4S Asset Owners Network in response to the International Sustainability Standards Board’s (ISSB) consultation, in which they stated the need for “decision-useful data that considers both environmental and social impacts on a company as well as the company’s impact on the environment and society. This double-materiality approach will give investors earlier insights into likely financial and business impacts, and provide the information we need to deliver on our own net zero and broader sustainability commitments.” 
• Although the IFRS Disclosure Standards start from an investor materiality lens, incoming European standards under the European Sustainability Reporting Standards (ESRS) include reporting on impact. Therefore, most UK companies that trade into the European Union would be required to report under ESRS standards and the incorporation of impact into UK reporting frameworks will be critical to the UK’s future role as a leading financial centre.

Information on roll out will be essential so that each sector can be prepared. This includes public sector reporting, as well as different financial actors such as pension funds. It is only through a whole economy decarbonization that any individual organisation will be able to reach net zero without reliance on offsetting. 

Finally, a greater focus on a joined up approach is welcome, with the incorporation of nature, adaptation and a just transition within the update. This echoes the inclusion of nature and social considerations within the Transition Plan Taskforce’s recommendations. A holistic approach is essential, as nature, climate and society cannot be thought of in isolation. The climate crisis cannot be solved without reversing nature loss, neither can environmental outcomes be achieved without thriving communities. 

HM King Charles III established A4S in 2004, when he was The Prince of Wales, with the aim of working with the finance and accounting community