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UK Must “Harness the Power” of its Green Taxonomy – GTAG

Ahead of autumn consultation, industry experts urge UK government to leverage taxonomy to align policy with sustainability objectives.

The Green Technical Advisory Group (GTAG) has called on the UK government to follow other jurisdictions in proactively defining how, and where, the taxonomy applies across policy areas. 

“Drawing from experiences in other regions, the UK has an opportunity to consider various use cases, prioritise them, and tailor the taxonomy to suit these purposes, particularly as it launches its taxonomy consultation in the autumn,” GTAG Member Kate Levick said during a webinar on 8 September.  

In August, GTAG published its paper on policy linkages noted how other international taxonomies are clarifying how they will guide policy decisions. In fact, 41 out of the 47 taxonomies currently under development have either stated outright or implied that they aim for their respective taxonomies to be used to guide policymakers and authorities, or they are in the early stages of development and have yet to make such an intention clear. 

To help the UK government initiate its exploration of how the taxonomy aligns with policy, GTAG has developed a framework and created a specific set of recommendations to guide its implementation.  

According to Levick, the UK green taxonomy serves two primary purposes: maintaining market integrity and mobilising capital for environmental objectives.  

“Our recommendations aim to align these objectives with government policy, tracking progress, consumer protection, national and local actions, private sector engagement, and international efforts,” she said.  

“By carefully considering these aspects, the UK can harness the power of its taxonomy to drive sustainable and green investments while preventing greenwashing.” 

GTAG was established in June 2021 to provide advice to HM Treasury on the development and use of the UK’s green taxonomy and delivered its two penultimate pieces of advice last week. 

Policy links 

GTAG’s paper aims to support the development of the UK’s regulatory landscape for green finance, said Levick, with the organisation outlining 20 specific recommendations. 

“The recommendations encompass a range of ways the taxonomy can be used to support government policies,” said Levick, adding that a key application is related to the development of a broader sustainability disclosure regime, where the taxonomy is expected to play a significant role. 

In August, the UK unveiled Sustainability Disclosure Standards (SDS) to set out corporate disclosures requirements on sustainability-related risks and opportunities, leveraging the International Sustainability Standards Board’s (ISSB) inaugural climate and general sustainability standards. 

Further, the UK’s Financial Conduct Authority (FCA) has delayed the publication of the Sustainability Disclosure Requirements (SDR) policy statement from Q3 to Q4 of this year, with the resulting implementation of its labelling scheme, product naming and marketing rules now expected H2 2024.Levick also noted that the taxonomy could be employed via initiatives such as a net zero test, which the UK might apply to all its public investment decisions, utilising the taxonomy to evaluate whether investments align with the its definition of ‘green’. 

Another aspect to consider is transition plans, Levick said, which are set to become a requirement for financial firms and listed companies to disclose, with a consultation due to conclude next month to determine, among other details, whether this requirement should extend to private companies. 

“Here, the taxonomy could play a pivotal role in how these entities communicate their investment shifts and progress,” she said. 

The UK initially committed to introduce mandatory disclosure of transition plans from financial institutions and listed companies during the COP26, resulting in the formation of the Transition Plan Taskforce (TPT) in 2021.  

Having launched its framework in November 2022, the TPT aims to finalise its disclosure framework and implementation guidance and will develop sectoral guidance. It also plans to increase its engagement with other jurisdictions and standard setters, including the International Sustainability Standards Board (ISSB) to support global convergence on transition plans.   

Steering investments 

Tracking progress on the channelling of capital to sustainable investments is another important aspect where a taxonomy can contribute to government policy by labelling financial flows, said Levick. 

Levick added that several national entities, including the UK Infrastructure Bank and the British Business Bank plan to utilise the green taxonomy to guide investment decisions.  

The UK Infrastructure Bank has announced 17 transactions so far, including a £500 million (US$627 million) fund with NextEnergy Capital that aims to double the amount of subsidy-free solar power in the UK.   

In September, the bank will provide more information about how it plans to invest its £22 billion budget, sharing sector-specific details, along with its view of financing requirements and potential challenges. 

“It’s evident that there is a wide array of potential uses for the taxonomy,” said Levick. “These recommendations are intended to stimulate government thinking and foster discussions about the taxonomy’s possible uses.  

“Determining the key use cases will play a crucial role in shaping the final design of the taxonomy.”

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