Skip to content
Head of Corporate Secretarial Services, UK and Ireland, Global Entity Management, TMF Group
07 June 2021
Read time
3 minutes

ESG and Brexit: can the UK set itself apart in the long term?

Snowy forest with a road

In 2018, the EU set out a clear action plan for sustainable economic growth within the Union. The EU’s objective is to maintain growth without creating problems for future generations due to the depletion of resources or environmental crises, such as climate change.

The EU has sought to define clear taxonomy, benchmarking and guidance regarding the duties of, and disclosure by, companies and financial institutions within the Union concerning environmental, social and corporate governance (“ESG”.)

The goals of these measures are to:

  • direct capital flows towards sustainable investments,
  • mainstream sustainability into risk management, and
  • encourage transparency and long-term approaches in financial and economic activity.

The EU published a taxonomy in the Official Journal of the European Union on 22 June 2020, which entered into force on 12 July 2020, defining the conditions for economic activity considered sustainable.

Since 10 March 2021, the EU has started to phase in the Sustainable Finance Disclosure Regulation (SFDR) to introduce standardised reporting as a means of reducing ‘greenwashing’, where claimed environmental benefits are untrue, and allowing comparison between reports. Public consultation on the draft regulatory technical standards are open until 1 September, with the final texts anticipated in December 2021.

Post-Brexit divergence

The UK Government announced that it would not adopt the EU’s provisions following Brexit, choosing instead to develop its own taxonomy, albeit based on the EU’s. In doing so, the UK hopes to seize an opportunity to become a leading centre for green finance in the post-pandemic world.

The UK Government intends to develop a more robust approach to ESG disclosure. The EU has taken a ‘comply or explain’ policy to disclosure, whereas the UK has opted for mandatory reporting for UK companies and financial institutions.

There will be challenges for UK businesses trading within the EU, should the UK deviate radically from the ESG provisions implemented by the Union. Variation, no matter whether this is through greater or less stringent regulation, will increase complexity and make drawing comparisons more difficult.

International alignment

However, ESG reporting goes beyond the EU and certainly beyond the UK in the drive for clarity and comparability, having an international dimension. Several global initiatives include the United Nations-supported Principles for Responsible Investment, founded in 2006, and the International Platform on Sustainable Finance, launched in 2019. Both the UK and EU are members.

The accounting profession has supported international efforts to align ESG reporting. Founded in 2011, the Sustainability Accounting Standards Board was established to develop standardised ESG reporting. Furthermore, the Big Four accounting firms have developed a set of metrics for the international reporting of ESG.

Given the drive for international standards in ESG reporting to reduce complexity and allow for comparisons to be made, it may leave global Britain little latitude for deviation from international standards, with which both the UK and EU will have to align.

Talk to us

TMF Group is uniquely positioned to help customers overcome cross-border challenges across professional service disciplines. For more information on these and other matters related to the impacts of Brexit, do not hesitate to get in touch with your TMF Group contact or make an enquiry.

Project finance
Delivering ESG in emerging markets

In recent years, ESG-driven demands in project finance have been changing not only the financing approach but also the underlying projects themselves. Financiers and project sponsor companies need to meet a seemingly ceaseless array of new global standards that require new policies and reporting.

Explore Topic
Luz Station, São Paulo
ESG: three factors, but a single issue

The emergence of ESG as a driving force of business and finance in recent years has created new demands on companies, investors and regulators alike. The ever-evolving regulations bring significant challenges for project sponsors to address, as part of their day-to-day management. Often, the response has been to add capacity and capability, develop new sources of expertise and create departments that can respond to the new requirements.

Explore Topic

Expand your business efficiently across borders

Get in touch to find out how we can help your organisation grow in a complex world.

Contact us Contact us