In 2021, the Government published a report titled ‘Roadmap to Sustainable Investing’, with details on plans to make the UK a net zero financial centre. The report explains that to make the financial system more sustainable, 3 phases need to be implemented – informing investors and consumers, acting on information, and shifting financial flows. Implementing the first of these 3 phases will involve addressing the myriad of missing information. Then, sharing this relevant and insightful information from businesses to investors and consumers. Developing a common language and reporting system is the only way in which this hurdle can be tackled… sound familiar? UK Taxonomy has been described as ‘a practical tool for investors, companies, consumers and regulators’ by parliamentary secretary Baroness Penn.
A UK Taxonomy – what would it look like?
There is no doubt that our blog concerning green taxonomy in the EU has left some people wondering what it’s place is here in the UK. Well look no further! Although there is no exact equivalent framework here in the UK currently, the government is talking about implementing a UK Taxonomy system very soon.
Leaders in green finance
Whilst the UK has legally committed to becoming net zero, the government is also pushing for the UK to be a global leader in green and sustainable investments. In the transition to a net zero UK economy, finance will play a significant role. So what steps are the government taking to become the first global ‘net-zero financial centre’?
The Green Finance Strategy
As part of ‘Energy Security Day’ or ‘Green Day’ on the 3oth of March, an updated Green Finance Strategy was published. This contains some interesting updates including:
- A timeline in which to announce the panel overlooking the transition finance market review.
- Outlining the intention to create two committees (one independent, and one governmental) on integrated sustainability reporting according to the existing ISSB framework.
- Outlining the intention to update the Environmental Reporting Guidelines with more detail about Scope 3 emission reporting within the framework.
Despite these updates, the Strategy does not highlight any activities to be included in a taxonomy– a notable absence. It states that the UK taxonomy is still in an early development phase with ‘building blocks’ yet to be established. So whilst a taxonomy is definitely in the works, it might be a while until we see it in full.
A UK Taxonomy – what would it look like?
Earlier this year Chris Skidmore, previously Minister of State at BEIS and the MP responsible for signing the UK’s net zero pledge into law, published an independent review of net zero in the UK – ‘Mission Net Zero’. The report states that the UK Taxonomy is a key component to be able to deliver on net zero claims and an ‘opportunity to provide clarity and implement a coherent green taxonomy’. It also includes 129 recommendations including the involvement of industry, improving infrastructure to curb emissions and green property development.
Post-Brexit, the Government appointed an independent Green Technical Advisory Group (GTAG) to implement a UK Taxonomy reporting framework. The intentions are to design a tool that will be robust enough to support the needs of UK businesses and investors in tandem with the UK’s legally binding net zero commitment. The framework itself will broadly look the same as our EU siblings across the water. The 3 main pillars of the framework involve:
- Making a substantial contribution to one of six environmental objectives
- Doing no significant harm to the other objectives
- Meeting a minimum set of safeguards
Adapting the EU Taxonomy
That being said, the Government does currently hold the power to change the substance and form, given that they repealed EU law in order to remove the obligation to adopt green taxonomy before the 1st of January 2023. Key stakeholders have urged the Government to consider its approach, and keep a simple and proportionate Taxonomy on the cards. Pushing back on the deadline to comply means that the Government are giving themselves a chance to execute this more practically. This is crucial in maximising the usability of the taxonomy for businesses. Some complexities with the EU Taxonomy are already coming to light. For example, the complexity of the Do No Significant Harm principle and the difficulty in aligning green taxonomies with varying national policies. Recommendations to the UK Government, published by the GTAG include:
- Ensure TSC is as ambitious as the EU Taxonomy
- Remain committed to being science-based
- Carefully consider deviations from EU Taxonomy, the UK ought to remain internationally comparable
- Minimise deviations which require materially different IT systems or processes
Find out more about the EU Taxonomy and what it would mean for your business in our downloadable deep dive report.
What next?
The pressure is on to develop the UK Taxonomy with demand from all sides to see substantial progress soon. MPs have been grilling those at the top, with questions on timings becoming very heated in a parliamentary session held a few months ago.1 As a result, the recent updates in the Green Finance Strategy are likely to disappoint many. Hopefully, we will be getting more information soon so, sit tight for now and we will continue to update you!
Footnotes
[1] Parliamentary TV https://parliamentlive.tv/event/index/1f83d209-254a-46ab-9bca-0d505de90a40
