Sunak Plans U.K. Green Bonds in Financial Services Overhaul

(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak put green innovation at the center of his vision for the future of the U.K.’s financial services after Brexit, as he set out plans for a sweeping overhaul of the industry.

Sunak said the U.K. will issue its first green gilts next year, and make it mandatory for companies to disclose their exposure to climate-change risks by 2025 -- the first major economy to do so.

In his first big statement on financial services since becoming chancellor in February, Sunak told Parliament he will launch a review of the U.K.’s listing rules for companies in an effort to attract innovative businesses to Britain.

“We want to remain one of the most open places to do business anywhere in the world,” Sunak said in a Bloomberg TV interview. “Importantly, we want to be a leader in green finance.”

Britain is at a crossroads as it prepares to leave the European Union’s trading regime at the end of the year. Talks between British and EU officials have so far failed to reach a deal on a regime of so-called equivalence rulings, which would allow banks to keep operating across both jurisdictions.

Sunak hardly disguised his frustration with the EU’s approach, but said he was going ahead and granting a package of so-called equivalence decisions for European financial services firms anyway.

He insisted he will not weaponize equivalence rulings in future, and wants clarity and transparency to help businesses.

In his statement, Sunak also said he will:

• Propose regulations establishing a baseline of standards for so-called “stablecoins,” which are privately-issued digital currencies
• Work with the Bank of England to determine whether and how central banks should issue their own digital currencies
• Establish a “green taxonomy” that will spell out which activities can be defined as environmentally sustainable
• Said the government will soon publish a consultation on reforming the U.K.’s rules governing funds.

The government is trying to burnish the U.K.’s green credentials as the country gears up to host a major set of United Nations climate change talks next year, and deliver on its pledge to become carbon neutral by 2050.

Many climate risk disclosures will become mandatory by 2023 with the proposals implemented in full by 2025, according to Sunak, who said the U.K. will become the first country in the world to introduce recommendations from the Task Force on Climate-related Financial Disclosures.

The Treasury said that the first green bonds will be issued next year, with the U.K. planning “a series of further issuances to meet growing investor demand.”

Net Zero

“We’re trying to attract capital into funding projects that will help us meet our ambitions on net zero, and this will be an important part of that,” Sunak told Bloomberg.

The chancellor said a commitment to acting on climate change is one of the things that unites the U.K. with the approach of U.S. President-elect Joe Biden.

“The announcements I’ve made today about the U.K. wanting to show global leadership and progress the climate change agenda when it comes to financial services, hopefully that’s something that we can work very closely on,” Sunak said. “It’s something that President-Elect Biden spoke about a lot during the campaign, so I remain very optimistic and excited about the relationship that we will have with the new administration.”

Once dismissed as largely irrelevant or peripheral by financiers, climate change is now seen by a majority of money managers and bankers as an economic problem as much as an environmental one.

The physical effects of global warming, from forest fires to coastal flooding, will have a dramatic effect on asset prices and company fortunes, as will the seemingly inevitable transition to a lower-carbon economy.

To determine the winners and losers, the finance industry needs data on how companies are performing. The TCFD, which was set up in 2015 by the G20-backed Financial Stability Board, was designed to help companies better identify, manage and disclose climate-related risks and opportunities.

Michael R. Bloomberg, the founder and majority shareholder of Bloomberg LP, the parent company of Bloomberg News, is the chair of TCFD.

The task force said last month that support for its recommendations has soared in the past year as demand grew from investors for more information on how a warming planet will affect business. But disclosures by companies on the financial impact remain low, it said.

©2020 Bloomberg L.P.