March 30, 2023, was dubbed "Green Day" in the United Kingdom ("UK"), as the government published numerous policy statements, consultation responses, new consultations, and guidance, which all form part of its wider strategy called "Powering Up Britain." Together, these set out the government's vision for the UK's transition to net zero and the strengthening of UK energy security. These publications restate existing policy as well as progress proposals related to energy, nature, and green finance. Key documents include:
- The Green Finance Strategy 2023, which aims to reinforce and expand the UK's position as a leader on green finance and investment, as well as set out the next steps for the UK Green Taxonomy;
- The Net Zero Growth Plan, which sets out how the government aims to seize the economic opportunities of the net-zero transition and deliver on net-zero commitments;
- The Energy Security Plan, which sets out the government's steps to ensure the UK is more energy independent, secure, and resilient;
- ESG Ratings: a consultation on establishing a regulatory regime for ESG ratings providers; and
- Carbon Leakage Risk: a consultation on addressing carbon leakage risk to support decarbonization.
Additionally, the government published its response to the recommendations set out in the Independent Review of Net Zero, the 2030 Strategic Framework for International Climate and Nature Action, the UK International Climate Finance Strategy, and the Carbon Budget Delivery Plan.
One of the principal reasons for the Green Day launch was to respond to a 2022 High Court ruling that the 2021 Net Zero Strategy was insufficient to meet the legal targets set by the Climate Change Act 2008. It remains to be seen whether the revised strategy will be challenged by environmental campaigners.
The numerous proposals and policies will have wide-ranging implications for the UK economy and market participants. We set out below a few of the key takeaways from the Green Finance Strategy 2023 and the Net Zero Growth Plan.
The Green Finance Strategy 2023
This sets out the government's approach to green finance and provides a substantial update to the previous 2019 strategy. Key points include:
- A UK Green Taxonomyis to be delivered. This will serve as a tool to provide investors with definitions of which economic activities should be labelled as green and which assets meet a credible standard of sustainability. The expectation is that once the taxonomy is finalized, companies will report against it voluntarily for at least two years before disclosures may become mandatory. A consultation is expected in Autumn 2023.
- The Sustainability Disclosure Requirements ("SDR") remain a key commitment. The SDR will provide a streamlined and enhanced disclosure framework for sustainability reporting for business, the financial sector, and investment products. A central part of the SDR will be alignment with the climate-related disclosure requirements of the Taskforce on Climate-related Financial Disclosures. Further detail on the implementation of the SDR is expected to be published this summer.
- Alongside the strategy, the government has published a consultation on regulating ESG ratings providers to seek views on how regulation could help ensure better outcomes for ESG investment products and ensure improved transparency and good conduct in the ESG ratings market. The consultation will close on June 30, 2023, after which the government will confirm its next steps.
- The strategy also prioritizes nature and biodiversity. The government is to explore how best to incorporate the Taskforce on Nature-based Financial Disclosures, which is due to be finalized in September 2023, into UK policy and the legislative architecture.
The Net Zero Growth Plan
This plan set outs in some detail the government's progress since the Net Zero Strategy was published in 2021 and what further steps it plans to take. Key points include:
- Carbon capture, usage, and storage ("CCUS") is identified as a key commitment that has already been earmarked in the Spring Budget 2023 for up to £20 billion of funding to help unlock private investment in CCUS. Eight projects across the northeast and northwest are set to progress to negotiations.
- Accelerating deployment of renewables, reducing reliance on fossil fuels to heat buildings, delivering a hydrogen economy, and supporting the delivery of nuclear energy, including via small modular reactor technologies. The government is committed to fully decarbonizing the power system by 2035 and will implement planning reforms to achieve this.
- The government will set out a long-term pathway for the UK Emissions Trading Scheme ("UK ETS") and explore expanding the scheme to more sectors of the economy, including high-emitting sectors. Additionally, the intention is to legislate to continue the UK ETS beyond 2030 until at least 2050.
Alongside the plan, the government has published a consultation on addressing carbon leakage risk to support decarbonization. Potential policy measures to mitigate carbon leakage risk include carbon border adjustment mechanisms and mandatory product standards. The consultation closes on June 22, 2023
Read the full Climate Report here.