Blackfinch Comments on The Government’s New Climate Governance Objectives:
It has been quite a week in financial markets with the announcement of a potential vaccine for COVID-19. In a joint effort by Pfizer and BioNTech, the promising vaccine candidate is stated to have an initial success rate of 90%. The announcement was met with a wave of relief across markets. Cyclical sectors, being most closely tied to economic change, began to outperform those that have benefited greatly from stay-at-home policies.
Positive Developments on Climate Governance
While the vaccine candidate took the spotlight, there were some positive developments from the UK Government regarding its commitments to green finance and sustainability goals. Spearheaded by the Chancellor, Rishi Sunak, the UK has set out to “bolster the dynamism, openness and competitiveness” of the financial services sector.
The focus is on ensuring that the sector can continue helping to combat the effects of climate change. This can include reducing carbon emissions in the face of global warming, and increasing investment in renewables, for a greener economy and world.
In seeking to achieve these objectives, the UK Government will issue the first ever Sovereign Green Bond in 2021. It will also become the first country in the world to make the recommendations of the global Task Force on Climate-Related Financial Disclosures (TCFD) an official requirement.
TCFD-aligned disclosures will be mandatory for UK businesses including those within financial services. Companies will be required to disclose their climate-related risks on a regular and transparent basis.
The Chancellor also added further comment around ensuring that the UK will continue to pioneer new technologies and shift sector activity towards a future of net zero carbon dioxide emissions.
Helping to Meet Targets Through Investing
Blackfinch’s investment goals are fully aligned with these new proposals and objectives from the UK Government. We’re a signatory to the Principles for Responsible Investment. This reflects our commitment to environmental, social and governance (ESG) principles, with these central to our investment processes. We recognise that financial services plays an important role in the drive for net zero emissions.
The issuance of a Sovereign Green Bond will help the UK to meet its 2050 net zero target and other environmental objectives. The money raised from the bond can help to finance projects to tackle climate change and to invest in related infrastructure such as buildings, roads and power supplies.
There’s a great opportunity for Blackfinch to support this target via the portfolios offered by Blackfinch Asset Management. We seek to allocate funds to this exciting and growing sector of the sovereign bond markets.
Meanwhile, at Blackfinch Energy, our investment focus is on real assets such as wind and solar farms. Similarly, at Blackfinch Property, we invest across sectors, including in eco-living developments. These are all sectors the Government is actively targeting in its push to address climate change and invest in the UK’s infrastructure. We will continue investing in these areas in pursuit of these common goals.
A New Era for Climate Governance Reporting
The TCFD was created to improve and increase reporting of climate-related financial information. The commitment from the UK Government to make disclosures mandatory is an important development. The standards set by the TCFD can allow investors and businesses to better understand the material financial impacts of a firm’s exposure to climate change. This is something we wholeheartedly support.
There’s still work to be done as the mandatory disclosure for firms doesn’t come into effect until 2025. Nevertheless, it’s a key step forward and UK businesses, including those in financial services, can look to adopt it. For us, any such requirement would become an integral part of our ESG process.
In a further show of commitment by the Government, it also outlined a new related system of classification. Once implemented, this can provide a framework for determining which of a firm’s activities can be defined as environmentally sustainable. Again, the aim is to improve understanding of the impacts that firms and their activities and investments have on the environment. This is as the UK transitions to a sustainable economy.
These developments towards sustainable finance and greater disclosures will help to ensure that the UK is a global leader in working towards a sustainable future. We fully support the Government’s objectives and look forward to investing in opportunities arising from these initiatives.
This is good input from Blackfinch. As we wrote over the summer in one of our ESG blogs, Blackfinch have a very good ESG proposition within their investments and this is something we recommend to our clients.
They are ahead of the game in terms of ESG as we have been reporting on, we expect the rest of the industry to continue movement towards good ESG propositions.
Keep an eye out for further content on ESG from fund managers such as Blackfinch and our own original content.
Andrew Lloyd
16/11/2020