UK Government consults on the implementation of the UK Green Taxonomy

On 14 November 2024, HM Treasury (HMT) published a consultation on a UK Green Taxonomy, which was previously announced in the March 2023 update to the UK's Green Finance Strategy (see our blog here). 

Recap: What is a green taxonomy?

A green taxonomy is a classification tool which provides its users with a common framework that defines which economic activities can be understood as environmentally sustainable. Taxonomies can also involve placing restrictions on how sustainability labels can be used on products.

In a similar way to ESG reporting laws – such as the EU's Corporate Sustainability Reporting Directive or the proposed UK Sustainability Reporting Standards – green taxonomies seek to improve the transparency and accessibility of sustainability information, to put it on par with financial information.

As such, an effective green taxonomy forms an important component of a robust sustainable finance system, as it provides standards which help companies and investors make informed choices. Many major economies have introduced green taxonomies in recent years, including the EU, Japan, Russia, Singapore, China, and Canada.

What is the aim of the UK Green Taxonomy?

The UK Government has made a binding commitment to achieve net zero emissions by 2050. For the UK to reach this climate change goal, it is estimated that the UK will need to invest an additional £50 billion into the energy transition every year into the 2030s.¹

According to the UK's Green Finance Strategy, most of this investment will need to come from the private sector.

The aim of the UK Green Taxonomy is to help facilitate this mobilisation of private capital by contributing to the channelling of capital towards sustainable investments while

• promoting market integrity and preventing greenwashing.

The UK Government is requesting feedback from market participants on the procedural aspects of a green taxonomy, namely:

• the appropriate use cases for a UK Green Taxonomy, and
• the design and implementation of a UK Green Taxonomy.

Identifying use cases

HMT is requesting feedback from market participants on the costs and benefits of a series of possible use cases for a UK Green Taxonomy, including:

• acting as an input to project and business finance decisions, providing consistent standards to allow meaningful comparisons over time;
• supporting the mobilisation of transition finance, including financing for activities that enable other sustainable activities;
• informing the development of sustainability-focused financial products; and
• use as part of the government’s wider climate and environment strategy.

Key design questions

A key part of the proposed UK Green Taxonomy will be its interoperability with other international green taxonomy frameworks (notably, the EU's Taxonomy Regulation). The consultation asks for market participants' views on importing common design features from other taxonomies, in particular:

• Environmental objectives

The consultation notes that the most prominent environmental objectives in other taxonomies are climate change adaptation and mitigation, but other objectives include biodiversity loss, circular economy, or prevention of water pollution. The consultation invites market participants to suggest which objectives ought to be incorporated into a UK Green Taxonomy.

• Do No Significant Harm (DNSH) Principle

The DNSH principle is a core principle under the EU Taxonomy Regulation. It ensures that an economic activity which achieves progress against one environmental objective does not cause significant harm to other environmental objectives. For example, it would provide a check against an investment that was beneficial for climate change mitigation/adaptation but had a severe impact on biodiversity. The UK Government is seeking views on how to make this mechanism 'usable and proportionate' in the UK regulatory context.

• Business safeguards

The government recognises that many other green taxonomies include additional social safeguards relating to good business practice which work as additional due diligence checks on UK business-activities. The consultation requests views on whether this is necessary in the UK context, noting that there are many robust due diligence regulations already in place in the UK (such as the UK Modern Slavery Act 2015).  

• Frequency of updates

Respondents are asked for views on the frequency with which the UK Green Taxonomy should be updated, with HMT proposing a three-year review cycle.  The consultation anticipates that these updates will be needed to reflect the changing scientific, technological, and policy developments on the road to net zero.

• Governance and review mechanisms

The HMT is seeking views on the desired level of oversight and governance arrangements for the proposed UK Green Taxonomy, to ensure that it remains credible in the long-term. Some proposals include joint industry and government initiatives to maintain the framework, or to invite NGOs and international organisations to adopt a supervisory function.

Next steps

The consultation is open for responses for 12 weeks from 14 November until 6 February 2025.

The authors would like to thank Sophie Pamplin for her contribution.

1.     The Climate Change Committee, 'The Sixth Carbon Budget – The UK's path to Net Zero' (December 2020), link.