The UK Government presents initiatives designed to green the UK economy and bolster attractiveness as an international financial centre.

By Paul A. Davies and Michael D. Green

On 9 November 2020, Rishi Sunak, Chancellor of the Exchequer, announced several initiatives designed to help the UK tackle climate change, while maintaining its position as an “open, attractive international financial centre” after the Brexit transition period ends.

Most importantly, the Chancellor announced that the UK will require corporate disclosures to align with the Task Force on Climate-related Financial Disclosures (TCFD) by 2025 at the latest. In doing so, the UK will become the first country in the world to move past the “comply or explain” approach and make TCFD-aligned disclosure fully mandatory, in an effort to support climate-related transparency and the greening of the UK economy.

Mr Sunak also announced that the UK will issue its first Sovereign Green Bond in 2021, subject to market conditions. The Chancellor stated that the initial bond would be followed by a series of further issuances designed to meet investor demand for green instruments. Additional forthcoming measures include the introduction of a green taxonomy that will determine which activities can be defined as environmentally sustainable, as well as the establishment of a UK Green Technical Advisory Group that will review the EU taxonomy metrics and ensure they are appropriate for the UK market.


The Chancellor’s announcement follows efforts by various government agencies and working groups to consider adopting the TCFD’s proposals. In the 2019 Green Finance Strategy, the UK Government established a taskforce made up of regulators and government departments to explore how to best implement the TCFD’s recommendations (Taskforce). Other UK institutions have proposed the adoption of the TCFD: the FCA consulted earlier this year on requiring premium-listed companies to disclose in line with the recommendations of the TCFD, while the Department for Work and Pensions made similar recommendations for certain pension schemes.

Such initiatives come in the context of the newly published TCFD Annual Report, which shows that nearly 60% of the world’s largest public companies support the TCFD or report in line with the recommendations of the TCFD, as stakeholders continue to seek comparable, reliable climate-change financial data. (See The Road to Developing an ESG Global Standard.)

The TCFD-aligned mandatory disclosure requirements

Accompanying the Chancellor’s announcements, the Taskforce published an Interim Report and a Roadmap, both of which are meant to provide a preliminary, indicative outline of the UK’s approach to implementing the recommendations of the TCFD.

The Roadmap notes that the COVID-19 pandemic presents an opportunity to foster a “clean and resilient” economic climate that will not only allow for a green recovery, but also will prepare the UK economy to “meet tomorrow’s challenges”. According to the Roadmap, mandatory climate-related disclosure requirements will improve transparency and encourage better informed pricing, enabling the financial system to “play a key role in accelerating the economy-wide transition to net zero emissions, both by financing the transition and by addressing systemic financial risks to support a more resilient economy”. The Roadmap notes that given the urgency of the climate threat, the UK can no longer afford a voluntary approach to the TCFD recommendations. This sense of urgency was echoed by Andrew Bailey, Governor of the Bank of England, who delivered an address on the same day as the publication the Roadmap. Mr Bailey noted that “compared to the financial crisis and the pandemic, the risks from climate change are even bigger and more complex to manage. And acting now gives us the best opportunity to manage those risks”.

Acknowledging the challenges of a mandatory disclosure system, the Roadmap envisions gradual implementation, with some requirements initially including flexibility as non-binding expectations and accompanied by guidance. However, it is intended that TCFD-aligned disclosure will, by 2025 at the latest, apply to all of the following institutions:

  • Listed commercial companies
  • UK-registered companies[1]
  • Banks and building societies
  • Insurance companies
  • Asset managers
  • Life insurers and FCA-regulated pension schemes
  • Occupational pension schemes

The first stakeholders to be subject to certain TCFD-related disclosure requirements will be occupational pension schemes with a market capitalisation above £5 billion, banks and building societies, insurance companies, and listed commercial companies, all from 2021 (and these may be on a “comply or explain” basis in the first instance). The Roadmap shows that mandatory disclosures will then first target large companies and institutions with high market capitalisation, as those have the potential to effect the greatest positive change in relation to climate issues.

The Future

The Taskforce will take forward the strategies outlined in the Roadmap, while the details of implementation will be determined by the relevant regulator or government department, in relation to every institution category. Building on the Roadmap, the following institutions have already indicated that they are set to take action. For example:

  • The Department for Business, Energy and Industrial Strategy will consult on measures for UK-registered companies.
  • The FCA is proposing further measures for asset managers, life insurers, and FCA-regulated pension schemes.
  • The Ministry of Housing, Communities and Local Government will consult in 2021 on implementation in the Local Government Pension Scheme by 2023.

Throughout this process, the Taskforce will continue to foster a “coordinated, measured and proportionate approach across sectors” and “monitor the progress of the cross-sectoral implementation strategy”. At the same time, the Taskforce will support the International Financial Reporting Standards Foundation’s proposal on harmonisation by an alliance of voluntary standard-setting organisations.

Other stakeholders are also taking action: the Bank of England, as announced by Mr Bailey, is working with the Treasury and other regulators to consider the UK’s approach to climate disclosure. Additionally, the Bank of England is paying increased attention to climate change risks, and has announced a climate stress test for financial actors in June 2021.

Further, the Chancellor indicated that the UK will introduce its own green taxonomy. This will be aligned with the scientific metrics that are set out in the EU taxonomy. However, the Chancellor is looking to establish a UK Green Technical Advisory Group, which will look at these EU taxonomy metrics and ensure that such metrics are appropriate for the UK market.

These announcements appear to be ambitious and we will need to see the details related to these announcements (particularly in the context of the roll out of the climate-related disclosure requirements). An important issue that we will continue to monitor, centres around the UK taxonomy. Although the UK taxonomy will be based on the scientific metrics of the EU taxonomy, there is potential for the UK taxonomy to materially diverge from the EU taxonomy through the UK Green Technology Advisory Group’s review. Thus, to what extent the proposed measures will aid international investors in making informed choices and investing in UK-based companies remains to be seen.

Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.

[1] Whilst the Roadmap mainly discusses the implementation of the disclosure requirements in relation to large UK-registered companies, it also mentions ambitions for the requirements to apply to UK-registered companies. The Roadmap represents an indication of the Government’s plan and the implementation and scope of the disclosure requirements might change depending on market reception.