What next for the UK version of the EU SFDR and Taxonomy?

There is still a great deal of speculation about what the UK will do in terms of its own version of the EU Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. 

Neither of those pieces of EU legislation needed to be “onshored” into UK law before Brexit as they only started applying (in the EU) after the end of the Brexit transition period (March 2021 for the SFDR and 1 January 2022 for the Taxonomy Regulation).

So what do we know so far about what the UK is planning?

The most recent update to the FCA’s Regulatory Initiatives Grid indicates that final rules for TCFD disclosures for asset managers, life insurers, pension schemes and listed companies will be published in Q4 2021.

The Bank of England, HM Treasury and FCA are collaboratively developing the UK’s technical screening criteria, which will be used to “define what economic activities are environmentally sustainable”, which will inform the UK green taxonomy. However, progress on the UK’s Green Taxonomy is not expected until next year at the earliest. I don’t think we can expect too much more detail on any of this before COP26 in November 2021.

The FCA is also working on developing “guiding principles” for the design, delivery and disclosure of ESG/sustainable fund products. The FCA will be publishing next steps on guiding principles for the investment industry by Q2/Q3 2021. The FCA’s reference to “principles” indicates that the UK intends to adopt a more pragmatic, flexible and less prescriptive approach than the EU’s SFDR rules. This should make it easier for asset managers who are already compliant with the SFDR to then comply with UK requirements, because they will likely already have the relevant policies and procedures in place to meet UK demands. For more information about the FCA’s initial thinking on these guiding principles, see our previous blog post.

The fact that the detailed Level 2 rules for disclosures under the SFDR and the first set of technical screening criteria (on climate change) under the EU Taxonomy Regulation are both delayed (see here and here) makes it harder to assess to what extent the (eventual) UK rules will diverge from the EU ones. 

So the exact direction of travel in the UK may not be known until the dust settles on the EU regulatory landscape, at least for the time being.