The UK government is asking for feedback on whether it should create a taxonomy to support investment into the climate transition and clamp down on greenwashing.
Trailed by chancellor Rachel Reeves in her Mansion House speech earlier this month, the consultation seeks to establish “whether a UK Taxonomy would be additional and complementary to existing policies in meeting the objectives of mitigating greenwashing and channelling capital in support of the government’s sustainability objectives”.
Green taxonomies are official lists of business activities or projects that align with national environmental goals.
Around 50 jurisdictions have them in place or under development, including the European Union, Canada, Australia, China and South Africa.
In some cases they are developed by the market, while in others they are led by regulators. They also vary in how they are applied, with some being entirely voluntary and others being accompanied by mandatory disclosure requirements.
The UK government said in its consultation paper that it was “committed to learning the lessons from taxonomy implementation in other jurisdictions” – possibly a reference to the troubled introduction of the EU’s framework, which has been dismissed by many market practitioners as unworkable.
Investors have complained that barely any stocks survive the EU Taxonomy’s granular technical criteria and additional screens, making it unusable as a tool to create sustainability-labelled portfolios or make capital allocation decisions.
There have also been complaints that many existing taxonomies, including the EU’s, have been introduced by financial regulators and largely ignored by policymakers developing sectoral and industrial decarbonisation pathways.
As a result, there is no indication that governments are working to reduce the costs or increase the stability of eligible activities in the real economy so investors can justify allocating more capital to them.
The UK’s consultation highlights the value of a green taxonomy as “a reference point for other policies” and wants “to gather views on any market and regulatory use cases for a UK Taxonomy” that would support the country’s climate transition and the clampdown on greenwashing.
It suggests that, as well as functioning as a disclosure regime, a taxonomy could be used to assess the credibility of green bonds, help investor stewardship and engagement efforts and inform government policy.
It put particular emphasis on the role of a taxonomy in helping to develop a bigger market for transition finance – an area in which the UK government has said it wants to become a global leader in coming years.
The consultation is open until 6 February.
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