UKSIF response: HM Treasury’s UK Green Taxonomy Consultation
The UK Sustainable Investment and Finance Association (UKSIF) welcomes the opportunity to respond to HM Treasury’s (HMT’s) consultation on the UK’s green taxonomy, which we hope can lead to clarity swiftly from policymakers on the UK’s upcoming approach to delivery of a taxonomy following several years of uncertainty.
Over the last several years, we are grateful to have had the opportunity to contribute to extensive discussions and advice to previous UK governments on the design of a UK taxonomy through our membership of the independent Green Technical Advisory Group (GTAG) chaired by the Green Finance Institute (GFI). While naturally there was some areas of limited divergence in our and members’ views with the GTAG’s formal advice to government, we have been largely supportive of the group’s wide-ranging recommendations on the design of the UK taxonomy.
As the government now considers its approach to taxonomy development in the UK- which we believe is long overdue- our high-level views on the recommended approach to the UK taxonomy is the following below.
UKSIF’s high-level recommendations:
- The UK should proceed with delivery of a ‘science-based’ and as usable as possible green taxonomy based largely on the EU taxonomy’s overall framework and scientific metrics as recommended by the GTAG, while applying a voluntary approach to taxonomy-related disclosures in line with the UK’s commitments in last year’s ‘Green Finance Strategy.’ Should government commit to establishing a taxonomy, we would advise that GTAG’s work programme and recommendations- for example those we have noted above in our ‘Introduction’ to our response (e.g. the treatment of ‘enabling activities’ and promoting usability)- are closely drawn on.
- We would advise prioritisation at first of a consultation with stakeholders on the design of the climate mitigation and adaptation objectives of the taxonomy, versus the broader four objectives. Following an initial period of implementation in the UK’s market (e.g. three to four years), policymakers should potentially then consider- at a later date- the introduction of mandatory disclosures over time and consult on this area specifically. This would be an appropriate step from our view as familiarity with taxonomy reporting across different markets continues to develop, and as companies navigate the ongoing complexities of sustainability-related disclosure requirements at large.
- This potential consultation from government at a later date on mandatory taxonomy reporting should take into account the following: the potential evolution of a UK taxonomy’s use-cases over time (e.g. beyond informing private capital allocation and other private-sector purposes for use in public policy, such as underpinning sector decarbonisation pathways); the practical reporting challenges for companies facing mandatory disclosure requirements across multiple taxonomies- including the EU taxonomy- and how EU reporting requirements could interact effectively with UK requirements; the active consideration of interoperability in terms of metrics and KPIs reported under the UK and EU taxonomy to mitigate against confusion relating to the disclosures generated under taxonomy reporting; and finally how a UK taxonomy could operate seamlessly alongside investors’ internal sustainable and green classification investment frameworks, ensuring that our members could retain the flexibility to define their own frameworks that suits their needs and those of their clients.
- With taxonomy development globally continuing to progress in recent years, the UK should seek to more proactively contribute to ongoing discussions at international fora (e.g. the International Platform on Sustainable Finance), which could be facilitated through its own taxonomy approach and maintain a more principles-based perspective, as our collective understanding of the value of taxonomies continues to evolve. There is a positive precedent in the UK in some respects for this recommended approach with its international leadership role to date in terms of advancing leading, principles-based frameworks on climate policy and sustainable finance, such as the Taskforce on Climate-related Financial Disclosures (TCFD) and the UK Stewardship Code.
- Ultimately, while acknowledging the numerous challenges, we would hope to see international standard-setting bodies and fora (e.g. the IPSF, IFRS Foundation, and IOSCO) come together in time to facilitate a consistent, high-level approach to a single standard for green taxonomies, mirroring standardised approaches we are beginning to see in regards to corporate sustainability-related disclosures (e.g. through the adoption of the International Sustainability Standards Board standards) and climate transition plans. This should remain a core, longer-term ambition for government over the coming years, and we hope to see the UK once again seek to lead the way internationally in its approach to delivery of a green taxonomy.