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Six ways the 2024 UK general election presents an opportunity to make the financial system a force for good

2023 was the hottest year ever recorded, and the UK is one of the most nature-depleted countries in the world. The gap between rich and poor is becoming wider than ever - and the cost of living crisis is still in full swing, with 41% of adults struggling to pay their energy bills.

The 2024 UK general election gives the next government a chance to demonstrate that the UK can remain a global leader in tackling the environmental and economic challenges the world is facing.

The financial sector is a vital piece of the puzzle when it comes to changing the way things are done. Money can change everything – and financial institutions like banks and insurance companies can help drive the transition to a greener future by investing in and supporting responsible businesses.

However, too often, the rules that underpin investment activities act as a barrier to the innovation needed to deal with climate breakdown and social inequality. UK policymakers have the opportunity to set clear direction and a high bar, promoting better regulation, more transparency, and ensuring that companies and financial institutions are not acting against the best interests of society.

The next government will be in power at a crucial time and must lead from the front. ShareAction has put together a manifesto with six proposals for the next government that pushes policymakers to be bold in the face of multiple crises.

1. Improved laws for pension companies

Our pension money is invested on our behalf by the pension companies we trust our savings with. The UK pension industry is worth over £3 trillion – and devastatingly, much of this money is invested in things like fossil fuels and deforestation in order to generate profits.

‘Fiduciary duty’ – a law governing pension funds - exists to ensure that those who manage the money of others act in their best interests. But as it stands, this law simply refers to protecting financial returns. ShareAction believes that ‘best interests’ must also encompass savers having the ability to retire into a green, fair world – not one that is built by their pension money investing in things that contribute to climate change, deforestation, pollution, ill health and unfair wages.

We are proposing an explicit redefinition of 'best interests' in law to include non-financial determinants that ensure pension funds act on sustainability impacts.

2. Pensions savers must be protected from greenwashing

Pension savers should be confident that their money is being managed responsibly. Over 80% of UK adults want their money to do some good as well as provide a financial return, yet as explored above, this is rarely the case.

In 2023, the Financial Conduct Authority (FCA) introduced new rules to tackle greenwashing within the investment sector. However, these rules only apply to ‘retail funds’ - individuals who are investing their own money, and not ‘institutional investors’ – organisations like pension schemes that invest on behalf of others. These new rules must be expanded to cover pensions in order to accelerate the transition to net-zero and provide UK savers with the assurance that their savings are genuinely being invested sustainably.

3. Corporations should be required to report on their sustainability and social impacts

Corporations should be required by law to be transparent about their work as it relates to things such as climate emissions, worker pay, and contributions to public health. For example, at the moment many UK companies produce toxic air pollutants, but few report on it or make the information publicly available because they simply don’t have to.

We’re calling for the next government to implement Sustainability Disclosure Requirements to create a clear, well-rounded and robust reporting system.

4. The financial sector cannot ignore its impact on biodiversity– and its reliance on it

Over 50% of global gross domestic product (GDP) is ‘moderately or highly dependent’ on nature. The Taskforce on Nature-related Financial Disclosures – or TNFD – is a framework that enables organisations to report on their impacts and dependencies on nature, and should be made mandatory.

5. To address racial inequality in the workplace, introduce ethnicity pay gap reporting

The income struggles faced by Black and ethnic minority communities are harsher than White British workers. The vital first step to tackling this is to introduce mandatory ethnicity pay gap reporting for the UK’s largest companies. ShareAction has produced a toolkit demonstrating how this can be achieved.

6. The way that investments are managed must be environmentally and socially responsible by law

‘Stewardship’ is the way that investments are managed to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, environment, and society. We’ve researched stewardship practices for many years, and whilst regulation has come a long way, its voluntary nature means the impact is limited. The next government needs to drive a more rigorous and enforceable stewardship regime.

The proposals outlined above build on existing initiatives and require little to no government spending – yet would boost green growth, reduce inequalities and help tackle both the climate and biodiversity crises. It’s time for policymakers to step up.

You can read the full manifesto here.

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