UK scraps Green Taxonomy

HM Treasury has published a response to its UK Green Taxonomy Consultation confirming that a UK Green Taxonomy would not support the government’s broader sustainable finance vision and will not therefore proceed.

The response recognises London as a leading global hub for sustainable finance. To maintain this position, the government is seeking to deliver a world-leading sustainable finance framework to drive the green transition and deliver economic growth. Following feedback from industry, the government has concluded that a UK Green Taxonomy would not be the most effective tool to achieve these aims and that other policies are of higher priority to accelerate investment into the net-zero transition and limit greenwashing, including the recently published consultation on the UK Sustainability Reporting Standards (UK SRS).

The original consultation aimed to assess the value case for a UK Green Taxonomy and the ways in which it might be used by the market. Views from industry were clearly very mixed, with a positive sentiment from 45% of respondents and 55% with mixed or negative views towards the initiative. Concerns centred on the real-world application of the policy, primarily driven out of experience of working with other taxonomies, and concerns regarding the extent to which taxonomies were delivering on desired objectives.  Although limited, some specific use cases were highlighted from responses including:

1. Using UK Green Taxonomy alignment data within the FCA’s Sustainability Disclosure Requirements (SDR) and fund labelling regime and as part of fund prospectus disclosures. 
2. Using the UK Green Taxonomy as a reference for ‘use of proceeds’ instruments which finance specific activity. 

However, the response outlines that designing and maintaining any UK Green Taxonomy would be a time-consuming process, risking diverting public and private sector energy from other activities that are more likely to drive UK economic growth and the net-zero transition. 

While these use cases will no longer be realised, the government states that it remains committed to delivering an effective sustainable finance framework. The recent Leeds Reforms and Financial Services Growth and Competitiveness Strategy highlight a number of sustainable finance-related initiatives that the government is seeking to take forward. Therefore, despite possible first appearances, the decision not to proceed with a UK Green Taxonomy seems to represent a more focused approach to sustainable finance from the UK government and regulators rather than a shift away from the sector.

"Whilst our ambitions to continue as a global leader remain unchanged, the consultation responses showed that other policies were of higher priority to accelerate investment into the transition to net zero and limit greenwashing."

https://assets.publishing.service.gov.uk/media/687659e6a8d0255f9fe28edd/UK_Taxonomy_consultation_response.pdf