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  • UK Independent Review of Net Zero Recommendations for Carbon Markets and Financial Services

    The final report of the independent review of net zero has been published: "Mission Zero: Independent Review of Net Zero".  The review was established in September 2022 to assess the government's approach to achieving its target of net zero greenhouse gas emissions by 2050. The government published its Net Zero Strategy in October 2021. The review's report makes numerous recommendations across a variety of sectors. Below are those most relevant to the financial services sector.

    Carbon markets

    By 2024, the government should (through work within the U.K. Emissions Trading Scheme (ETS) Authority) develop a pathway for the U.K. ETS until 2040. While the government has set out the pathway for the U.K. ETS until 2030, further clarification would be beneficial. In addition, the government should set out what it envisages for the U.K. ETS up to 2040 by:
    • Publishing a vision for the future design and operation of the ETS.
    • Setting a timeline for expanding the coverage to the rest of the U.K. economy and certain sectors such as maritime and waste.
    • Announcing its intentions for engineered greenhouse gas removals (GGRs) covering eligibility and timelines.
    • Taking forwards its consultation on carbon leakage measures, which may arise as the ETS expands. The aim should be to implement effective carbon leakage mitigations from 2026. Such measures should include a carbon border adjustment mechanism (CBAM) and mandatory product standards by 2023.

    The review also recommends that the government should endorse international voluntary carbon market (VCM) standards as soon as possible, consult on adopting regulated standards for VCMs and setting up a regulator for carbon credits and offsets, and establish a programme for offsets and carbon credits. In our article, "Trust, But Verify: The Recipe For A Global Carbon Credit Trading System", we outlined some key initiatives in developing a global carbon credit trading system. 

    Financial services

    The review recommends that the government should, in 2023, review how the U.K. can become the most competitive financial centre for green and transition listings, capital raising and project financing. This would involve reviewing the prospectus and listing regimes, with a view to encouraging growth in the market for green finance instruments and consider opportunities climate and nature data and analytics.

    The review also recommends that, through its update to the Green Finance Strategy, the government should lay out a clear, robust and ambitious approach to disclosure, standard setting, and scaling up green finance. This should include how the government will: (i) accomplish existing commitments to implement Sustainable Disclosure Requirements across the economy; (ii) provide a clear, long-term plan for attracting capital to achieve net zero gaols; and (iii) maintain the U.K.'s position as the leading green finance hub internationally.

    Financial disclosures and standards

    The review makes several recommendations in the area of financial disclosures and standards, including that the government:
    1.Endorses and implements the International Sustainability Standards Board (ISSB) standards as soon they are published.
    2.Progresses the work of the U.K. Transition Plan Taskforce on transition plan disclosures and, once more developed, mandate such disclosures for listed and private entities.
    3.Assess whether a transition taxonomy would be appropriate.
    4.Collaborate with international partners to adopt a U.K. approach that is interoperable with the approach of other jurisdictions.

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