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UK sets up independent advisory group on ESG investing

A new independent group is to be established by the UK government to help advise on standards for green investment.

The Green Technical Advisory Group (GTAG) will use data to ‘help companies, investors and consumers to make informed green choices, support investment in sustainable projects, and boost efforts to tackle climate change’.

One of the aims of GTAG is to clamp down on what the government refers to as ‘greenwashing’, the act of misrepresenting investments as being environmentally friendly.

Pinning down definitions

John Glen, economic secretary to the Treasury, said that it was crucial to have a common definition of what ‘green’ means. He added: “A UK green taxonomy will provide better data on the environmental impact of firms, supporting investors, businesses and consumers to make green financial decisions and accelerating the transition to net zero.

“I look forward to receiving the advice of the expert Green Technical Advisory Group as we put in place a rigorous taxonomy that works for the UK and sets a high standard globally.”

The formation of GTAG follows the government’s Build Back Better report in March, where it urged the financial sector to get behind its net-zero targets. Back then, a ‘transformational approach’ was promised.

ESG investing has been a buzzword in the industry in recent years, although there has been criticism about the looseness of its definition. In addition, a number of companies such as Shell and HSBC have come under legal and public pressure to cut their exposure to fossil fuel and other environmentally unfriendly investments. A report from Robeco in March also found that ESG investing is still not being fully embraced by US asset managers.

Deciphering data

Speaking to Expert Investor, Amy Clarke, chief impact officer at Tribe Impact Capital, welcomed the formation of GTAG, saying that ‘greenwashing’ was a big issue.

“There’s been a seismic shift in the number that purport to be ESG, are creating the transition to a low-carbon economy, or are tackling social issues. But a lot of it is superficial.”

Clarke says that this is often because institutions and people are working with data that they do not understand.

She added: “The data has to be understood in not just what it says, but what it doesn’t say. There are lots of issues with data quality and coverage. But we have seen, over the last three-to-four years, that the market has started to respond and assimilate ESG as simply good investing.”

Unfortunately, said Clarke, there are some bad actors in this space.

She said: “The work of GTAG and the EU will be important in tackling that. There’s also a woeful lack of transition ambition. Market participants will only ever tell you the lowest bar that they’ll go to, and the amount of lobbying they do is profound, extraordinary, deep, and wide. If we allow them to inform the debate, we are only going to get the lowest-common denominator, not what they can really do.”