Green Finance Institute: UK’s finance taxonomy must not greenwash harmful investments
The UK’s plans to stop finance touted as sustainable from supporting projects that significantly harm nature or the climate currently have loopholes, experts are warning.
The Green Finance Institute’s (GFI) Green Technical Advisory Group (GTAG) has voiced concerns that the Government’s plans to ensure that ‘do no significant harm’ assessments are not yet credible enough, suffering from challenges including weak definitions of key terms.
These assessments will likely be applied to some public spending in the future. They will require projects to contribute in a significantly positive way to at least one of six key environmental objectives. Additionally, projects must do no significant harm in regard to the other objectives.
Issues covered by the objectives are reducing emissions; climate adaptation; conserving water and marine resources; supporting the circular economy transition; preventing and controlling pollution and protecting and restoring biodiversity and ecosystems.
Going forward, ‘do no significant harm’ assessments will be conducted by private investors looking to prove that their investments are green.
The specifics will be detailed in the UK’s Green Finance Taxonomy.
The Taxonomy was due earlier this year but consultations are now expected this autumn or winter. It will set out which investments can be badged as ‘green’ and, potentially, which are ‘transition’ finance. Prime Minister Rishi Sunak has repeatedly stated an ambition for the UK to be a global leader on transition finance, which supports high-emission industries to minimize their climate impacts and risks.
The GTAG is warning that the UK will likely face challenges with expanding its ‘do no significant harm’ assessment requirements once the Taxonomy is published – as the EU already has.
Clarity, transparency and common sense
At a top-line level, the EU has faced legal challenges over its decision to include nuclear and some natural gas activities in its Taxonomy. Opponents argue that natural gas always causes significant climate harm, while nuclear comes with risks relating to water and nature impacts. Both also come with potential public health impacts.
Beyond this, the GTAG is warning, there have been teething issues regarding the specifics of the assessments, which it expects the UK to experience perhaps more severely.
One of these issues is confusion over key terms and how to measure them. The GTAG is calling on the UK to clearly set out what it means by terms such as ‘biodiversity’ and ‘net-zero’ to help ensure ‘do no significant harm’ reporting is joined-up and that greenwashing is weeded out.
Another issue is the accessibility of official advice. The GTAG recommends that all guidance on ‘do no significant harm’ reporting is published by a single body for ease.
The GTAG also recommends that the UK adopts a more ‘flexible’ approach to assessments and reporting for projects which may not be able to prove full alignment with all six key objectives yet. It outlines how the EU, in not permitting this approach, has limited its base of projects and discouraged more widespread assessment and reporting.
Projects unable to meet the ‘do no significant harm’ criteria should not be classed as Taxonomy-aligned, the GTAG emphasizes. However, their reporting would “provide valuable information to the market” and encourage project operators to improve plans and outcomes.
GTAG chair Ingrid Holmes summarised: “The UK has the opportunity to benefit from its fast-follower status on taxonomy development. It is clear that there are significant usability issues with the EU taxonomy’s approach to devising ‘do no significant harm’ criteria.
“[We have] set out a roadmap to iterating and improving on the foundations laid by the EU that the UK can adopt to create a taxonomy that works effectively for the market, going further and faster on stimulating investment in the climate transition while safeguard nature and wider environmental objectives.”
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