Sustainability and Responsible Investment

General election and sustainability

The Prime Minister called a general election in June, meaning that policy engagement with government officials will now be paused. Shortly before the election was called, the Government published a progress update on the implementation of Sustainability Disclosure Requirements, which indicated that policy initiatives including the process for UK endorsement of ISSB standards and subsequent disclosure requirements, a consultation on the Government approach to transition plan disclosures for UK companies, and a consultation on the design of the UK Green Taxonomy had been delayed until later in 2024 or next year.

The IA has been preparing for a general election over the past 12 months, including the increasingly likely prospect of a change of governing party. Earlier this year, The IA sponsored an independent thinktank report which proposes a new partnership between the public and private sectors to finance the transition to net zero. The report, published by IPPR and the Green Finance Institute, argued that the financial sector can play a key role in supporting the UK's industrial strategy and green recovery, by aligning its activities with national climate targets and providing innovative financial solutions. The report also calls for more public investment to catalyse private capital and reduce the risks and costs of green projects. The project was particularly helpful in facilitating engagement with the Labour Party ahead of the election and the party’s manifesto includes a number of commitments relating to public-private partnership and the role of financial institutions, including investment managers, in facilitating the low-carbon transition. Shortly before the election, the IA met with Labour officials to discuss topics including ISSB standards, transition plans and the green taxonomy.

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

Net Zero Blended Finance

In May, the IA hosted a roundtable discussion for members with officials from the Department for Energy Security and Net Zero (DESNZ) and HM Treasury to discuss how blended finance models might be used to more strategically mobilise private finance to support the Government’s green objectives. The roundtable was held in conjunction with BVCA.

‘Blended finance’ is a catch-all term that covers financial products or structures that combine different funding sources aimed at lowering the risk profile of specific companies or projects and ultimately attracting private capital. The Government intends to work with the finance sector to develop a forward-looking analysis of blended finance models and where they could be better deployed in the UK. The Net Zero Blended Finance Project aims to improve the capacity and expertise of government to explore innovative blended finance approaches in funding designs for net zero.

In doing so, it plans to expand the Government’s use of blended finance where appropriate, improve collaboration with public finance institutions, and catalyse additional private sector investment into key technologies and business models supporting the UK’s transition to net zero.

Government departments and publicly owned bodies involved in this project include the Department for Energy Security and Net Zero, HM Treasury, the Department for Business and Trade, the Department for Transport, UK Infrastructure Bank, Innovate UK, the British Business Bank, and UK Export Finance. The project, which is led by officials, is expected to continue after the general election.

Transition Finance Market Review

The IA submitted a response to the Transition Finance Market Review call for evidence in May. The review was launched in January and will be chaired by Vanessa Havard-Williams with a secretariat led by the City of London Corporation and involving Government officials.

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

The review will consider what constitutes transition finance and how financial services of all types, in all relevant asset classes, can be used to support a credible net zero transition. It will focus on principles that ensure credibility and integrity and developing an ecosystem to increase the use of transition finance. As the review is market-led, it will continue during the general election period and intends to report to the next government, whatever party it represents. The IA is planning to facilitate a member roundtable as part of the review, following the election.

IA-Eversheds Sutherland SDR Implementation Guidance - May '24

As firms have begun to implement the FCA’s rules, the IA has collected questions from firms and worked closely with Eversheds Sutherland to produce Question-and-Answer-style guidance. This document does not present an exhaustive list of all the questions raised since the Policy Statement was published and, as the picture evolves, for example with the FCA’s expansion of the regime to portfolio management and other products, we will keep the Guidance under review.

Cross-trade Guidance on SDR Consumer-Facing Disclosure Requirements - May '24

Following the FCA's statement in PS23/16 that it 'encourage(s) development of an industry-led template and industry collaboration on best practice' in relation to the SDR consumer-facing disclosure (CFD) requirements, the IA established a cross-trade working group to produce guidance and associated frameworks that firms can use when implementing the FCA's CFD rules.

This guidance - produced jointly by the IA, Eversheds Sutherland, UKSIF, AIC, the UK Depositary Association, PIMFA, TISA, and the ABI - has been developed to encourage more consistent disclosure between firms, improved comparability between products and better consumer understanding.

IA Markets Insight SDR industry survey

The IA has published the full results of our April member survey on how the industry is implementing SDR. The survey provides key insights, including the number of labels that firms will be applying and when, an analysis

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.

However, making this work effectively requires change or clarification from the FCA in four key areas:

Implementation date
Scope
Thresholds and portfolio construction, and
Reporting requirements

of the labelled fund universe, the approach to non-labelled funds with sustainability characteristics in line with naming and marketing rules, and the implementation of the anti-greenwashing rule. The full results can be found here on the IA website.

IA response to the FCA’s consultation on extending SDR to portfolio management

We also submitted our final response to the FCA's consultation on extending SDR to portfolio management, which can be viewed here. Overall, we support the extension of some aspects of the SDR and labelling regime to certain portfolio management services to the extent that products and services in other parts of the retail market are analogous to collective investment vehicles and are marketed as sustainable. This would mean that model portfolio services (MPS) and centralised investment propositions (CIPS) would come into scope, as this would provide a more level playing field for the market, in particular where customers have clear sustainability preferences.

Further information:

Carol Thomas
Head of Sustainability & Responsible Investment
carol.thomas@theia.org

Flora Tudhope
Policy Lead, Sustainability & Responsible Investment
flora.tudhope@theia.org

Paul Scaping
Public Policy Specialist
paul.scaping@theia.org

IA website hub page can be found here.