The UK is to explore introducing a mandatory requirement for listed companies and pension funds to disclose climate-related risks from 2022, as part of a wide-ranging strategy to harness the City of London in efforts to curb carbon emissions.
The government has until now been reluctant to make reporting of climate risks mandatory, despite pressure from MPs and green campaign groups.
But efforts to develop “green finance” is becoming a rare area of cross-party consensus, with ministers committed to cutting carbon emissions to “net zero” by 2050 — and keen to promote London as the “go-to hub for green investment”.
The government’s new green finance strategy, to be published on Tuesday, will “set expectations” for listed companies and large asset owners to report climate risks by 2022, said the Treasury, adding that work with regulators “will explore the most effective way of doing this, including whether mandatory disclosures are necessary”.
“Meeting our objectives will require unprecedented levels of investment in green and low-carbon technologies, services and infrastructure. Green finance will be central to providing the flows of capital we need,” said the chancellor Philip Hammond and business secretary Greg Clark in an introduction to the strategy.
An increasing number of large UK companies already include some disclosure of climate risks in their annual reports, and some shareholders are pressing them to go further.
The Bank of England has told the financial services companies it regulates to put in place comprehensive plans to manage the risks of climate change — which the BoE plans to include in its bank stress tests.
An international task force, in which the BoE governor Mark Carney has been closely involved, has developed guidelines for voluntary disclosure already used by large asset managers.
Stephen Jones, chief executive of UK Finance, the trade body for financial services, said the industry supported the aim of introducing disclosures by 2022, and was ready to play its part in meeting the 2050 target.
Other measures set out in the government’s strategy include funding for a green finance institute, which is intended to strengthen co-operation between the public and private sectors. There is also a proposal to introduce an explicit reference to climate change in the statutory objectives of financial regulators.
Regulators welcomed the initiative. In a joint statement, the BoE’s Prudential Regulation Authority, the Financial Conduct Authority, the Financial Reporting Council and the Pensions Regulator described climate change as “a defining issue of our time”.
Charles Counsell, chief executive of the Pensions Regulator, said it was “no longer simply a social responsibility issue” but “a core financial risk impacting broadly across business”.
Some of the measures outlined in the government’s strategy are likely to be greeted with scepticism.
Ministers have pledged £5m towards a fund to help pilot schemes for green mortgages, which would create financial incentives to make homes more environmentally sustainable. However, mortgage experts have questioned the likelihood of cheaper home loans in a fiercely competitive market, given interest rates are already close to historic lows.
But the government’s strategy won a warm welcome from Mary Creagh, Labour chair of the Commons environmental audit select committee, which had called for climate disclosure to become mandatory. She said she was encouraged that the government had not ruled out going down this route.
The Labour party has hinted at more radical measures to spur green finance, should it enter government.
In a speech last week, shadow chancellor John McDonnell said he would launch a review of the financial system “as it currently relates to the climate emergency”, suggesting that he might legislate so that any London-listed company that failed to meet environmental criteria would be threatened with delisting.