Six sustainable finance developments to watch out for in 2023

2023 is shaping up to be a landmark year in sustainable finance, so here are six key developments to watch out for.

Net Zero Delivery Summit 2023

The Net Zero Delivery Summit has been established as a key milestone in the sustainable finance calendar. The 2023 Summit will be held in partnership with the Egyptian COP27 Presidency, and will mark the halfway point between COP27 in Egypt and COP28 in the UAE. This hybrid event will be hosted at the Mansion House in the City of London on May 24 2023 and streamed live to a global audience.

The theme for 2023 will be ‘financing a just transition.’ The focus will be squarely on delivery - promoting examples of best practice from the different sub sectors of financial and professional services when it comes to financing the just transition, in emerging markets and in the UK.

The agenda will include sessions on financing a just transition, mobilising capital into emerging markets to support transition, mitigation and adaptation, and the scaling of high integrity voluntary carbon markets.

The summit is free to attend virtually. Sign up now to register your interest. 

Voluntary Carbon Markets

Voluntary Carbon Markets (VCM) are set to play a critical role in mobilising capital for climate action. 2023 is shaping up to be a pivotal year for the VCM. A range of initiatives and developments will strengthen the integrity and increase the demand for voluntary carbon credits. The UK is well-positioned to play a key role in driving this progress.

In the first half of this year, two critical pieces of work aiming to enhance the integrity of the VCM will be published.

• The Integrity Council for the Voluntary Carbon Market (IC-VCM) will release its final Core Carbon Principles and associated Assessment Framework. This will set new global standards for the supply of high-integrity carbon credits (publication update expected in Q1 of 2023).
• The Voluntary Carbon Markets Integrity Initiative (VCMI) will be publishing its final Claims Code of Practice at the end of Q2 to guide credible, voluntary, use of carbon credits.

With the release of these two, critical, integrity publications, and an increasing understanding of the important role that the VCM can play in delivering a net zero economy, it is expected that demand will pick up in 2023.

In 2023, more country-to-country agreements on the trading of carbon credits are also anticipated, as well as more linkages between voluntary and compliance markets. The UK Voluntary Carbon Markets Forum, for which the City of London Corporation provides secretariat, will continue to promote integrity initiatives, and support UK demand for carbon credits.

ESG Ratings

The UK government will set out a new green finance strategy in early 2023. It will also consult on bringing Environment, Social and Governance (ESG) ratings providers 'within the regulatory perimeter' in Q1 under the Financial Conduct Authority’s (FCA) remit for regulation to ensure the UK “retains its global leadership” in the rapidly growing sector. The International Regulatory Strategy Group (IRSG), which the City of London Corporation co-sponsors with TheCityUK, sees a strong rationale for regulating these firms, in line with IOSCO’s recommendations.

In the meantime, the FCA has asked the IRSG and International Capital Markets Association (ICMA) to set up a group working on the development of a code of conduct for ESG data ratings and providers, which may provide a glidepath to future regulation. A comprehensive, proportionate, and globally consistent voluntary code of conduct for ESG ratings and data will help ensure this market is fit for purpose, in turn supporting market practitioners to assess the risks more accurately. The draft code of conduct is expected to be published for consultation in June 2023.

Nature and Biodiversity

Nature has often been overshadowed by climate in terms of public and policy attention. Nature and biodiversity should receive a lot more focus in 2023, with most financial and professional services companies now recognising the need to enhance their awareness and capabilities in this critical area.

In September 2023, the Taskforce on Nature-related Financial Disclosures (TNFD) will release its highly anticipated final framework for managing and disclosing nature-related risks. This framework will serve as a crucial guide for organisations to report on and address emerging nature-related risks. The UK is taking the lead in adopting this guidance, with more than 200 UK-based organisations part of the TNFD Forum.

Biodiversity credits were a major focus at the recent COP15 in Montreal, and it is expected that they will receive even more attention in 2023 due to their potential to drive significant capital flows towards nature-positive investments. Another trend to keep an eye on is the emergence of new initiatives and advancements in nature and biodiversity data, which will be crucial in shifting the nature conversation from a moral obligation to a necessity for risk management and economic success.

UK Sustainability Disclosure Requirements

A key regulatory focus for 2023 will be the progression of the UK’s Sustainability Disclosure Requirements (SDR) and investment labels regime, which is designed to tackle greenwashing and retain trust in sustainable products.

The consultation, published in October 2022, proposes to introduce three product labels (Sustainable Focus, Sustainable Improver, and Sustainable Impact) which will be compulsory for retail products advertising sustainable features, and optional for other products. The labels come with detailed disclosure obligations. The regime will also introduce product-naming conventions and a general ‘anti-greenwashing’ rule.

Transition Plan Taskforce

The vital work of the recently launched Transition Plan Taskforce (TPT) to create a ‘gold-standard’ climate transition plan will continue at pace in 2023. The UK has become a leading example by putting the world’s most ambitious climate-change targets into policies to kick-start a green industrial transformation. Transition plans are a key enabler for financing investments as companies transition to a low carbon economy, spurring investment and green finance. These measures are also supported by corporates. Transition plans will help embed long-term thinking within business strategy, particularly in regards net-zero delivery. It is important for the UK to continue to show leadership on this issue.