2022 in review: UK’s U-turns and delays
Political instability and an energy crisis instigated by the war in Ukraine have defined the last year, leaving a mark on the UK’s sustainable finance priorities.
Much policymaking was postponed in the UK in 2022, a year that saw three prime ministers, four chancellors and the death of the country’s longest-serving monarch. Political turmoil and fears over energy security ended up delaying the country’s sustainability agenda too.
Although the government became the first G20 country to make climate-related disclosures mandatory in April, in line with the recommendations of the Task Force on Climate-related Financial Disclosures, the remainder of the year was characterised by several notable legislative delays.
The UK Green Technical Advisory Group, tasked with developing the UK green taxonomy, urged the government in an October report to amend its original timeline of 2022 implementations to enable full market consultation. The taxonomy has now been further postponed.
Currently, the UK lacks definitions for green investments while many UK fund managers must already comply with the EU taxonomy for sustainable activities. Climate think-tank E3G criticised the delay on a UK taxonomy but also recognised the country is now in a position to ensure that its definitions are easy to use and based on science, following market feedback over its EU equivalent.
However, some progress was seen in the proposals by the Financial Conduct Authority to label investment products across three categories: “sustainable focus”, “sustainable improvers” and “sustainable impact”. A market consultation on these proposals ends on January 25 2023.
Other reforms on frameworks initiated by the EU require final decisions following the UK’s departure from the European bloc. A UK Carbon Border Adjust Mechanism still needs to be consulted on and a full government response to the UK Emissions Trading Scheme proposals is also awaited by the market. Revisions on the equivalent EU schemes were agreed in December.
New and reversed announcements
There was also a number of policy reversals this year as prime ministers took turns in Downing Street. During her short stint as leader of the country, Liz Truss lifted a ban on fracking, launched new licensing auctions for oil and gas exploration in the North Sea and mandated a government review into its approach to achieving net zero targets to ensure alignment with business and economic growth goals.
Current prime minister Rishi Sunak reimposed a ban on fracking and further expanded the windfall tax on oil and gas companies, a policy that Truss was not in favour of.
The government still seems conflicted on how to best spur investment in renewables and guarantee energy security, following Russia’s full invasion of Ukraine in February. Environmentalists and tory MPs (including former COP26 president Alok Sharma, who lost his cabinet position in the latest government reshuffle) recently pushed Sunak to make a U-turn to lift a moratorium on new onshore wind farms.
At the same time, the government approved the construction of a new coal mine – the first in 30 years – which would serve the steel industry, rather than generate power. The controversial move stunned many, given the UK encouraged other countries to phase down the use of coal at last year’s COP26 climate talks in Glasgow. Sharma publicly opposed the decision, calling it “an own goal” while arguing the new mine would have no positive impact on energy security nor on reducing energy bills.
Chancellor Jeremy Hunt meanwhile announced the construction of a new nuclear facility in his Autumn Statement and confirmed earlier this month that the Treasury will join as an observer the FCA’s newly created ESG data and ratings code of conduct working group.
Elsewhere, the UK Transition Plan Taskforce, which is set to develop the “gold standard” for private sector climate transition plans, released its disclosure framework for consultation (open until February 28 2023). The framework was welcomed by trade association UK Finance, who also voiced support for the government’s new energy company obligation scheme, or ECO+, which aims to provide funding for households in need of home insulation and energy efficiency upgrades.
“Greening the UK housing stock is critically important if the UK is to meet its net-zero target, and the mortgage industry is ready to play its part. We also call on government to develop policies to address skills shortages in the eco-upgrade installation sector,” a spokesperson for UK Finance said.
The new year should bring an updated green finance strategy for the UK, and the public findings of former energy minister Chris Skidmore’s review of the delivery of the government’s net zero commitments. While post-Brexit measures for the sustainable finance space were delayed in 2022, business and investors will likely expect to receive greater clarity on major policy decisions in 2023.
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