What’s the future of ESG reporting?

Six months after Glasgow hosting a historic COP26 conference – it’s time for an update on sustainable finance development here in the UK. You may be thinking ‘oh, but I don’t work in finance’ but bear with me as how we develop sustainable finance policy is going to impact the financing of every business in the not-so-distant future.

Here at the CBI, we know first hand just how challenging the current headwinds are for businesses across the UK and their impact on the cost of doing business.  But please don’t forget that investors continue to step up their hunt for great sustainable investment opportunities and the UK government and regulators are working at pace on some of the critical areas that will need robust regulation to ensure we transition to a net zero economy without too many volcanic disruptions along the way.

Taxonomy, TCFD and changes to annual reporting

Critical to the ‘green’ transition is our ‘green’ taxonomy – that is our classification system for what economic activities can be classified as sustainable or ‘green’. The CBI sits on the government’s  Green Technical Advisory Group that is tasked to deliver an effective taxonomy for our economy and in the coming weeks, we expect to be working on its first major consultation. The taxonomy will be critical to how we report on our transition to net zero and should be part of the upcoming integrated Sustainability Disclosure Requirements (SDR) regime, alongside existing mandatory TCFD reporting standards. Whilst the SDR didn’t factor into the Queen’s Speech as primary work for the coming year, there is huge activity on building standards for disclosures at a global level.  The IFRS Foundation – which effectively decides on how all business annual auditing is conducted – now has an International Sustainability and Standards Board.   This new board has now proposed a TCFD-inspired framework on how firms will report on sustainability in the future – we predict that this will be a major feature of your annual report within the next few years.

Deeper carbon footprint investigation for businesses requiring to product transition plans

Back in Whitehall, there is progress on the mandate from Treasury for company transition plans which comes into force in 2023 and 2024 for all financial services and listed firms in the UK.  The first consultation on these plans is now out for input.  So, if you are listed or thinking about a public listing as a route to growth, this will directly impact you.  But more importantly as these transition plans become a part of our ‘business as usual’ reporting and storytelling, expect investors and staff to be looking for more companies to produce them. Businesses working with companies required to produce transition plans should expect more questions about their carbon footprint – particularly if you operate in high-emitting sectors.

Chance to shape the Green Finance Strategy

And finally, we now have the government looking to update its Green Finance Strategy from 2019 with a call out for evidence.  This updated strategy will look at how we increase the flow of finance to ‘green’ our economy as well as how the ‘greening’ of our financial system is progressing.

The great news is that CBI is working right across these regulatory developments in the sustainable finance space on your behalf.  You can join up discussions to shape our position or you can sign up to our networks to be kept informed. Contact Julia for more information.

The bad news is that the sustainability train will soon be landing in your station, so take a good look around our guidance materials and start to think about the strategy for net zero. The first point of call is our Financing green: a guide for SMEs, produced with UK Finance.