UK Government receives final advice on forming a green taxonomy
The Green Technical Advisory Group (GTAG) has issued its final advice to the UK Government on the creation of a UK Green Taxonomy centred on establishing a long-term "institutional home" for the taxonomy.
This marks the culmination of nine advisory papers provided to the UK Government since GTAG’s inception in June 2021.
In the two years since GTAG’s establishment, the global landscape for green finance regulations has evolved significantly, with the introduction of 21 additional taxonomies, bringing the global total to nearly 50.
GTAG’s chair Ingrid Holmes said: “GTAG’s membership remains convinced of the need for a usable and scientifically robust green taxonomy, aligned to the UK’s net-zero investment and wider environmental needs, within the increasingly busy disclosures landscape.
“Given for some sectors – including steel, cement and agriculture – there are no absolutist definitions of net zero-aligned economic activity, and so transitional definitions will be needed, the taxonomy will be constantly evolving. This is what makes the last GTAG paper – looking at options for the ‘institutional home’ of the taxonomy – so important.”
In its final paper, GTAG underscores the need for sustainable governance arrangements for the UK Green Taxonomy and outlines various options for achieving this goal.
The recommended “least regrets” option involves the UK government establishing an Advisory Body to facilitate the Taxonomy’s implementation and development through executive action in the short term.
This could be accomplished either by augmenting the responsibilities of an existing entity, such as the Financial Reporting Council/Audit, the Reporting and Governance Authority, or by creating a new organisation, potentially referred to as “GTAG 2.0.”
The rationale behind this recommendation is to support both voluntary and mandatory disclosure approaches, paving the way for mandatory disclosures in the future.
GTAG is advocating for a thoughtful approach to developing the UK Green Taxonomy, one that draws lessons from the implementation of taxonomies in other regions.
Furthermore, GTAG is advising that the UK Government needs to concurrently prepare for the medium term by initiating the process of legislating long-term statutory decision-making powers through either granting additional powers and responsibilities to an existing entity or creating a new organisation.
One of the main benefits of introducing such a Taxonomy is that it would help cut down on corporate and investor greenwashing.
New research has revealed that cases of greenwashing that create corporate risk are on the rise, with one in four climate-related environmental, social and governance (ESG) now associated with greenwashing, up from one in five last year.
Holmes added: “The green taxonomy will also, of course, play an important role in tackling greenwashing.
“The need to deploy capital as efficiently as possible in the race to net-zero and nature recovery has never been as great as now – a Taxonomy can provide vital clarity and certainty on where this capital should be invested.”
GTAG will wait for the official Government consultation, which is due imminently, and will support the next stage of discussions about the formation of the UK Green Taxonomy.