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03 November 2021 1 min read

Net Zero transition plans requirement could revolutionise sustainable finance

Emily Farrimond

Emily Farrimond
Partner | Financial services | London

Reaction to the UK government’s announcement that large firms and financial institutions will be forced to show how they intend to reach climate change targets.

 

Today’s announcement[1] that UK financial institutions and listed companies will be required to publish net zero transition plans has the potential to revolutionise the impact of sustainable finance.

Baringa’s own research[2] shows that up to half of sustainability-linked loans are open to ‘greenwashing’. The current lack of transparency and regulatory guidance undermines the positive intentions of green finance initiatives, opening the door to criticism and accusations of hypocrisy.

To drive sustainable change, the Transition Plan Taskforce’s ‘gold standard’ for transition plans must support the setting of robust standards and guidance. Baringa’s research shows that 80% of companies accessing sustainability-linked loans had not set targets to reduce indirect emissions (referred to as Scope 3), implying that sustainability-linked borrowers aren’t even trying to support net zero goals.

A cultural change in transparency and approach to the challenge of reaching net zero is urgently needed. Baringa’s research shows that 40% of companies accessing major sustainability-linked loans did not disclose how often their boards discussed climate risk, and a further 30% were not incentivising their management towards climate objectives.

 

To find out more about how we can help you, please email emily.farrimond@baringa.com.