It’s been a difficult life for the UK’s Green Taxonomy. First introduced in 2020, the Taxonomy has been subject to numerous delays as the UK government struggles to nail down exactly how the regulation should function. Complicating matters are the slew of ESG regulations that came into effect in the UK in recent years, making it that much more difficult for the Taxonomy to find its niche. And now, a recent article from PA Future discusses the possibility of the Taxonomy being scrapped:
“Rachel Richardson, head of ESG at London-based law firm Macfarlanes, said she ‘wouldn’t be surprised if the government decided to scrap the UK Green Taxonomy’. She explained to PA Future: ‘When the Taxonomy was first proposed, it was November 2020. In the last four and a bit years, various regulatory regimes have stepped in to fill the gap: we now have mandatory Taskforce on Climate-related Financial Disclosures reporting, a labelling regime in the form of the UK Sustainability Disclosure Regulation (SDR) and an anti-greenwashing rule.’”
As for the EU, just yesterday they published their Platform on Sustainable Finance report: Simplifying the EU taxonomy to foster sustainable finance, proposing five main measures to simplify taxonomy reporting at the EU level:
- “refining the ‘do no significant harm’ (DNSH) assessment and reporting obligations by distinguishing between users (non‑financial vs. financial entities), uses (turnover vs. capital expenditure), and geographies (EU vs. non‑EU exposures)
- introducing a materiality principle applicable to all entities, materiality thresholds for all non‑financial company key performance indicators (KPIs), and a simplified DNSH assessment for the turnover KPI. Additionally, clarifying the KPIs related to operational expenditures (OpEx KPIs) calculation while limiting its mandatory scope to research and development (R&D)
- defining clear guidelines for the use of estimates within the taxonomy framework and establishing safe harbours for financial sector reporting
- allowing proxies and estimates across all assets in the context of the green asset ratio (GAR) and green investment ratio (GIR), while introducing a simplified retail assessment and a reduced denominator for asset classes strictly measurable against the taxonomy
- developing simplified and voluntary approaches for small and medium‑sized enterprises (SMEs), as well as for banks and investors, to integrate the taxonomy into their disclosures.”
We’ll know more about the future of the UK’s Green Taxonomy once the government reviews the results of the public consultation which closes today. Sustainable finance laws are notoriously difficult for global financial regulators to nail down and remain in flux. In addition to the newly-issued Platform, the EU Omnibus legislation expected later this month is likely to shake up EU regulations including sustainable finance elements like the SFDR and EU Taxonomy regulation.
How will the UK will respond? Time will tell – but hopefully, not too much time.
Our members can learn more about sustainable finance regulations here.
If you aren’t already subscribed to our complimentary ESG blog, sign up here for daily updates delivered right to you.
