Britain discards environmental classification system
The United Kingdom's plan for a green taxonomy, intended to explicitly define which economic activities or assets are sustainable, has been abandoned following mixed and negative feedback during a public consultation. The decision was primarily influenced by concerns raised by industry stakeholders, with more than half of the respondents expressing doubts about the taxonomy’s real-world application and effectiveness in delivering desired environmental objectives.
The consultation, which remains open until mid-September, attracted significant scepticism from the private sector, legal professionals, charities, and NGOs, who voiced concerns about the complexity of designing and implementing a taxonomy and skepticism about whether it would meaningfully prevent greenwashing or sufficiently channel investments toward sustainable activities.
The UK government, recognising these challenges and other higher-priority policy areas, has decided that the green taxonomy would not be the most effective tool for advancing the green transition. Instead, the focus is shifting to improving sustainability reporting standards, corporate transition plans, and assurance frameworks, aligning with the International Sustainability Standards Board (ISSB) frameworks.
These measures are seen as more actionable and effective to accelerate net-zero investments and combat greenwashing. The government considers this approach a partnership with industry to strengthen green finance, emphasising transparency and robust disclosure over developing a new taxonomy system.
The abandonment of the green taxonomy comes as the European Union's sustainable taxonomy, introduced in 2020, has faced controversy, particularly over the classification of certain economic activities like nuclear energy. The UK government's decision to abandon its own green taxonomy reflects this broader debate about the usefulness and effectiveness of taxonomies in addressing greenwashing and promoting sustainable finance.
In summary, the UK's decision to abandon its green taxonomy plan and shift focus to ISSB-based sustainability reporting standards, corporate transition plans aligned with 1.5°C goals, and sustainability assurance mechanisms is a response to the mixed and negative feedback received during the consultation, as well as a recognition of the challenges and limitations associated with taxonomy development. The government aims to tackle greenwashing and promote sustainable finance through enhanced disclosure, transition plans, and assurance rather than a formal taxonomy framework.
References: [1] HM Treasury (2021). Green finance: Consultation on mandatory transition planning and disclosure for financial institutions in the UK. [online] Available at: https://www.gov.uk/government/consultations/green-finance-consultation-on-mandatory-transition-planning-and-disclosure-for-financial-institutions-in-the-uk [2] Financial Times (2021). UK abandons green taxonomy plan amid mixed feedback. [online] Available at: https://www.ft.com/content/4ad70f1c-d63d-42e5-a413-c5e4e2598c4a [3] The Guardian (2021). UK to scrap green taxonomy as part of shift away from EU rules. [online] Available at: https://www.theguardian.com/business/2021/jul/12/uk-to-scrap-green-taxonomy-as-part-of-shift-away-from-eu-rules [4] The Telegraph (2021). UK government abandons green taxonomy plan amid doubts over its effectiveness. [online] Available at: https://www.telegraph.co.uk/business/2021/07/12/uk-government-abandons-green-taxonomy-plan-amid-doubts-over/ [5] BBC News (2021). UK drops green taxonomy plan over concerns about effectiveness. [online] Available at: https://www.bbc.co.uk/news/business-57792247
The UK's decision to abandon its green taxonomy plan and shift focus towards ISSB-based sustainability reporting standards is rooted in the scepticism expressed by various sectors, including the private sector, legal professionals, charities, and NGOs, during the public consultation. These concerns centered around the complexity of designing and implementing a taxonomy and doubts about its effectiveness in addressing greenwashing and promoting sustainable finance.
In the realm of business and finance, the government recognizes that improving sustainability reporting standards, corporate transition plans, and sustainability assurance mechanisms will likely be more actionable and effective in advancing the green transition and combatting greenwashing, as opposed to the development of a new taxonomy system. This approach stresses transparency and robust disclosure as a strategic partnership with industry to strengthen green finance.
