PRI calls on UK regulators to act ‘more progressively’ on sustainable finance

PRI, UNEP and Generation Foundation find UK investors risk lagging on sustainable finance in new analysis.

The Principles for Responsible Investment (PRI) has called on UK policymakers, investors and lawyers to “act more progressively on sustainable finance” after finding that most investors are still failing to play their part in tackling sustainability challenges.

Regulators including The Pensions Regulator, the BoE’s Prudential Regulation Authority and the Department of Work and Pensions should set out guidance to clarify whether financial institutions should consider the scope of sustainability impacts, according to the PRI.

The analysis was included in a report published in partnership with the UN Environment Programme (UNEP) and Al Gore’s Generation Foundation. The report identifies areas in the UK’s legal framework which have not kept up with sustainability goals, despite the country’s perceived status as a global leader in climate action.

The paper suggests that investors are less willing to pursue sustainable impact goals due to insufficient clarity on certain guidance and policies.

The PRI has recommended that investor stewardship reports are graded and tiered according to their quality “to incentivise greater uptake of leading practices”.

“Investors in the UK remain hesitant to change their established practices and pursue sustainability impact goals, even when this is required to achieve financial objectives,” said the PRI’s director of policy, Margarita Pirovska.

The new analysis builds on a 2021 report by Freshfields Bruckhaus Deringer – commissioned by the PRI, UNEP FI and the Generation Foundation – which found that sustainability does fall into investors’ remit but is often neglected due to a lack of clarity around ESG regulation.

Pension funds, insurance companies, UCITS companies and investment managers are currently expected to consider sustainability impact goals in their investments, but this is not explicit in the “black letter” of the law and often misunderstood or overlooked, according to the new report.

The publication’s authors include Will Martindale, group head of sustainability at Cardano;  Faith Ward, chief responsible investment officer at Brunel Pension Partnership and chair of IGCC; and Stuart O’Brien, partner at Sacker & Partners.

UK investors and investor networks recently warned the new government led by Liz Truss to stay on track for the country’s net-zero targets, following mixed signals on climate from the prime minister.