The Chancellor’s Statement: Raising the Bar on Sustainable Finance for Asset Managers

Anna Skylakaki, Sonia Nath, Elaine Gray

Chancellor Rishi Sunak’s statement on November 9th demonstrates the government’s desire to make the UK a global leader in green finance. The UK is now the first country to make Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures mandatory and has also announced the implementation of a green taxonomy.

This establishes the UK as a leader in green finance and will be encouraging to those who want to see sustainability and climate at the centre of UK economics. The statement is an incredibly important step towards protecting the environment and a positive development for the green finance industry, presenting an opportunity for it to be a critical enabler in the drive towards net zero. Like all change, however, the announcement will also raise several challenges for asset managers.

1 Interim Report of the UK’s Joint Government-Regulator TCFD Taskforce, p.6

What does this mean for asset managers?

ESG is here to stay…& the bar just moved higher

  • The Chancellor’s statement is a clear signal of intent. Recent years have brought rising client and regulatory demands; now we see the government putting their weight behind the industry, demonstrating that ESG & Responsible Investment are here to stay
  • The now mandatory set of disclosures outlined by TCFD has raised the bar for the minimum standard. While complying with TCFD would have previously portrayed an organisation as going ‘above and beyond’ in their commitment to Responsible Investment, by 2022/23, it will simply be a legal requirement
  • This shift in the baseline should prompt asset managers to ask themselves where their organisation is now and where they aim to go. Business leaders should take this announcement as an opportunity to pause, reflect and re-articulate their ESG vision: is it to comply, compete or lead? If the aim is to lead, or even compete, careful planning and targeted investment will be required to meet these goals

UK Taxonomy – act early to avoid languishing over linguistics

  • Alignment to a set of defined terms will help bring comparability to the industry, and those who have already begun work to align to the EU Taxonomy should see minimal further effort required, given the UK’s intent to align to the EU taxonomy (though divergence may grow following review by the UK Green Technical Advisory Group)
  • Additionally, while transparency brings clarity and comparability, it will also increase accountability. Asset managers should expect increased challenges from clients if stated objectives are not met; beginning work to align product level objectives and literature to the incoming taxonomy sooner rather than later will help mitigate this risk

TCFD – change is required to integrate data and report at scale 

  • In addition to company-level reporting to shareholders and clients, TCFD requires asset managers to “describe how climate-related risks and opportunities are factored into relevant products or investment strategies. Asset managers should also describe how each product or investment strategy might be affected by the transition to a lower-carbon economy.2 It is also clear that there is work to be done to bring the current standard of reporting to one deemed passable by the TCFD:
2 Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, p39
3 TCFD 2020 Status Report
  • While many asset managers are now able to disclose ESG-related information to a handful of clients, scaling this up across thousands of clients and hundreds of funds, while conforming to new taxonomies, presents a significant challenge. To meet these requirements at scale and implement the required disclosures by 2022/23, asset managers will need to have access to the right data, supported by well-defined data governance and processes
4 A Roadmap towards mandatory climate-related disclosures, p.5
  • TCFD will also impact asset managers’ engagement and stewardship activity; it mandates “where appropriate, engagement activity with investee companies to encourage better disclosure and practices related to climate related risks” 
  • Active engagement will therefore be imperative in ensuring asset managers are effectively assessing the practices and progress of the companies they invest in against the incoming TCFD regulations. Regular, outcome-focussed engagement monitored against a benchmark will no longer be a ‘nice to have’ within the ESG space but a must to ensure compliance
5 Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, p40

Closing Comments

The Chancellor’s announcement is a positive and welcome development in the movement to build a more sustainable future and provide certainty to the industry. However, it will come as a surprise to those who have underestimated the importance of ESG & RI. Managers who have already invested in integrating ESG will have an advantage but are by no means ‘done’. The lesson here is clear – in a world where the bar is being raised progressively higher by clients, regulators and governmental forces, you need to set your own bar to stay ahead of the competition.

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About the Authors

Anna Skylakaki
Anna Skylakaki
Senior Manager

Anna is a Senior Manager at Alpha with over six years’ experience consulting for Financial Services firms. She has helped clients deliver large scale transformations, including technology and operating model change, and is active in Alpha's ESG & Responsible Investment, Digital & Agile and People & Culture propositions. Prior to joining Alpha, Anna worked as a Big 4 consultant and as a founding member of a technology start up.

Sonia Nath - Alpha FMC
Sonia Nath

Sonia is an experienced Consultant at Alpha and is actively involved in Alpha’s ESG & Responsible Investing Practice. She has been a consultant for 3+ years and has worked with a number of global and boutique asset managers to deliver projects across several practices, including ESG, Distribution and Compliance. Alongside client work, Sonia leads a pro bono project for Alpha’s Charity of the Year, Plastic Oceans UK.

Elaine Gray

Elaine is a Consultant at Alpha and an active member of Alpha’s ESG & Responsible Investing Practice. Since joining Alpha, Elaine has worked with a variety of global and boutique asset managers, undertaking projects across strategy, target operating model design and global implementation initiatives, with primary focus across the Distribution and Digital practices. Elaine is also a key member of the CSR team at Alpha, supporting our Charity of the Year engagement and taking part in pro bono work with our 2020 charity, Plastic Oceans UK.