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Freshfields Sustainability

| 5 minutes read

The new Roadmap to Sustainable Investing – an economy-wide plan for progress

Last month the government published its Roadmap to Sustainable Investing, which sets out its long-term ambition to green the financial system, align it with the UK’s net zero commitment and make the UK “the best place in the world for green and sustainable investmentThe paper sets out the government’s plan to build on its 2019 Green Finance Strategy and support the transition to net zero so that climate risks and opportunities can be recognised across the investment chain.  Importantly for financial services firms and other market participants, the Roadmap contains the most detail yet on key elements of the UK’s strategy and the way that they will fit together, including details on a new economy-wide disclosure regime and the long-awaited UK Green Taxonomy.

Three phase plan to green the financial system

The Roadmap explains that the greening of the UK’s financial system will be achieved in three phases:

  • Phase 1: Informing investors and consumers – addressing the information gap for market participants, ensuring a flow of decision-useful information on environmental sustainability from corporates to financial market participants;
  • Phase 2: Acting on the information – creating expectations and requirements that this sustainability information is mainstreamed into business and financial decisions, for example in risk management and investor stewardship; and
  • Phase 3: Shifting financial flows – ensuring that financial flows across the economy shift to align with the UK’s net zero commitment and wider environmental goals.

The Roadmap focuses on the strategy to deliver the first phase of informing investors and consumers, and sets out how new economy-wide Sustainability Disclosure Requirements (together, referred to in the Roadmap as the SDR) will bring together new and existing sustainability reporting requirements for business, the financial sector and investment products.  It is intended to allow sustainability information to flow from companies in the real economy to the financial sector and its financial products, which is in turn intended to empower investors and consumers to make financial decisions which align with their values.

The new SDR

The SDR will bring together existing sustainability-related disclosure requirements under one integrated framework, including the existing TCFD-aligned disclosure requirements (which are to be made fully mandatory across the UK economy by 2025 and which are already expected of PRA-supervised financial services firms), and will include new requirements:

  • for companies (including in the financial services sector) to make sustainability disclosures.  This will, subject to consultation, comprise reporting under proposed international standards (likely to be the new standards to be developed by the IFRS’s International Sustainability Standards Board) and reporting of environmental impact using the UK Green Taxonomy;
  • for asset managers and asset owners that manage or administer assets on behalf of clients and consumers (including occupational pension schemes) to disclose how they take sustainability into account, to help consumers determine whether their assets are managed according to their sustainability preferences; and
  • for creators of investment products to report on the products’ sustainability impact and relevant financial risks and opportunities. This information will form the basis of a new sustainable investment labelling regime that will make it easier for consumers to navigate the range of investment products available to them (and the FCA will publish a discussion paper on this proposed labelling regime shortly).

The Roadmap sets out indicative pathways for implementation, showing that the requirements will be introduced incrementally through legislation and regulatory measures. The scope and timing for implementing requirements in many cases will be determined following consultation, but the Roadmap indicates that other key elements of the SDR will be requirements:

  • for asset managers and owners and creators of financial investment products to substantiate ESG claims in a way that is comparable between products and accessible to clients and consumers, and to also disclose whether and how they take into account ESG matters in their governance arrangements, and in their investment policies and strategies;
  • for sustainable investments to satisfy minimum safeguards relating to basic good business practice in accordance with the UK Green Taxonomy. The SDR will require disclosure against these minimum safeguards and any related metrics; and
  • for firms to disclose transition plans, as detailed and credible transition plans with interim milestones and targets will support markets in monitoring progress towards a net zero economy.  Initially, the SDR will require that certain firms publish transition plans that align with the government’s net zero commitment or provide an explanation if they have not done so.

The UK Green Taxonomy

The UK Green Taxonomy will set out the criteria which specific economic activities must meet to be considered environmentally sustainable, and reporting against it will require certain companies to disclose the percentage of their capital expenditure, operational expenditure and turnover that relates to “Taxonomy-aligned” activities.  Providers of investment products will then be required to disclose the extent to which those products are Taxonomy-aligned, based on their constituent assets.

The Roadmap explains that the UK Green Taxonomy is based on its EU equivalent and will be robust, science-based, accessible and coherent with other international frameworks. It will be based on six environmental objectives (climate change mitigation and climate change adaptation, and sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems) which are underpinned by detailed technical screening criteria. To be considered Taxonomy-aligned, an activity must make a substantial contribution to one of the six environmental objectives, do no significant harm to the other five objectives, and meet a set of minimum safeguards.  The first two environmental objectives will be the subject of a consultation in early 2022.

Responsible stewardship

The Roadmap also makes clear that responsible stewardship is important, outlines the progress made in that area to date and highlights areas of continued focus, including the FCA’s intention to conduct further work on active investor stewardship that positively influences companies’ sustainability strategies. 

Overall, the Roadmap states that the government expects the pensions and investment sectors to use the information generated by the SDR to deliver on their responsibilities as stewards of capital across all asset classes and markets. In practice, the Roadmap states that, as the owners and primary allocators of capital, the pensions and investment sectors should seek to integrate ESG considerations into: (i) investment decision-making; (ii) monitoring and engagement strategies; (iii) escalation and collaboration; and (iv) voting practices. 

ESG ratings providers and agencies 

The Roadmap also indicates the government’s intention to bring providers of ESG data and ratings into the scope of FCA authorisation and regulation. The government will set out further detail on these plans in 2022.


Overall the Roadmap represents a significant amount for the UK to deliver on, and for firms to consider and integrate into their businesses at the appropriate times. Broadly, the first phase of the plan (including the SDR and the UK Green Taxonomy) is as expected, and international firms will appreciate the heavy focus on consistency with international standards – although of course the degree of consistency will not be apparent until the finer details have been developed.  One of the most interesting aspects of the first phase is the indication that certain firms will be required to publish transition plans, with a view to detailed and credible plans becoming normal across the economy.  In many ways, this is the most interventionist step yet – and likely foreshadows the more prescriptive requirements which must be required in phases two and three of the plan to ensure that sustainability information is integrated and then that financial flows are aligned with the UK’s net zero commitment.  In the meantime, financial services firms will be waiting to see what is agreed on at a more global level at COP26.

One of the most interesting aspects [...] is the indication that certain firms will be required to publish transition plans, with a view to detailed and credible plans becoming normal across the economy.