UK firms will have to disclose climate impact

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Chancellor Rishi SunakImage source, Getty Images

Some large UK businesses will have to start disclosing their environmental impact, under new rules set to be brought in by the Treasury.

The requirements will also apply to investment products and pension schemes.

It comes ahead of November's COP26 meeting in Glasgow, where world leaders will discuss their climate commitments.

Experts say the UK, which is hosting the event, is not currently on track to meet its own emissions targets.

Boris Johnson has pledged to cut emissions by 78% by 2035, compared with 1990 levels.

The Treasury said the new sustainability disclosure requirements (SDR) mean an investment product will now have to set out the environmental impact of the activities it finances.

In addition, a company's sustainability claims will have to be justified "clearly", and their net zero transition plans properly set out.

The aim is to combat "greenwashing", where firms make misleading claims about their environmental commitments.

But the government said the information will "only be impactful" if customers and investors actually use it.

Chancellor Rishi Sunak said: "We want sustainability to be a key component of investment decisions, and our plans will arm investors with the right information to make more environmentally-led decisions."

He said the rules will "set new global standards for sustainability that will boost the economy, protect the planet and support our net zero goals".

It is unclear when the rules will come in, or what will happen to firms that do not comply. Details of the specific reporting requirements will only be developed after a public consultation.

'Positive step'

Mr Sunak first mentioned SDRs in July and has announced these next stages for the requirements in the report: "Greening Finance: A Roadmap to Sustainable Investing", external.

Sam Alvis, from the Green Alliance think tank, said it was a "positive step in greening the private sector".

"While new green finance is vital, stopping money going into environmentally destructive investments is key. The upcoming spending review is an opportunity for the chancellor to apply the same rules for public spending," he added.

Image source, Getty Images

Rain Newton-Smith, chief economist at the Confederation of British Industry, said greater clarity on environmental impact "will help investors channel finance into projects that are aligned with net zero targets and will reduce carbon emissions across our economy".

But Heather McKay from E3G, an independent climate change think tank, told the BBC the government would need to send clear signals about "what is green and what is not" to ensure companies really change how they operate.

She said this would be a "crucial step" to tackling greenwashing.

Without the right information available, Jessica Fries, chairman of Accounting for Sustainability said that investors and pension funds have made decisions "in the dark".

"As a global centre of finance, it will be important that the recommendations align with emerging requirements globally," Ms Fries added.

Barbara Davidson, of think tank Carbon Tracker, said better enforcement of current accounting requirements was also required to combat greenwashing.

"Without this, investors do not have the requisite information about the effects of climate change for their decision-making," she said.

Boris Johnson's government is currently on track to cut only about a fifth of UK emissions by 2035, compared with 1990s levels, according to a group of experts that advises the government.