"UK Abandons Green Classification System"
The UK government has decided to abandon its plans for a green taxonomy that mirrors its EU counterpart, following mixed feedback from public consultations and concerns about the taxonomy’s practical effectiveness and complexity.
The green taxonomy, a classification system that defines which economic activities or assets are sustainable, was intended to address the issue of greenwashing. However, 55% of consulted stakeholders expressed doubts or negative views regarding the taxonomy’s utility. Concerns included the potential increase in costs for businesses, complications in investments, and negative effects on the UK’s competitiveness in global financial markets.
The UK Treasury concluded that a green taxonomy would not be the most effective tool for driving the green transition. Instead, the government is focusing on other measures such as adapting the International Sustainability Standards Board (ISSB) reporting standards and implementing 1.5°C-aligned transition planning requirements.
Instead of pursuing a taxonomy framework, the UK government is emphasising alternative approaches to address greenwashing and promote sustainable finance. These include market consultations on sustainability assurance, enhanced sustainability disclosures based on ISSB standards, and transition plan requirements aligned with climate goals. The government views these efforts as partnerships with industry to build the UK’s position as a global hub for green and transition finance, relying more on disclosure and transition planning rather than prescriptive classification schemes.
The abandonment of the taxonomy means UK financial institutions may continue to navigate a fragmented landscape of voluntary and third-party standards, rather than having a unified official classification system. This could create challenges for investors seeking clear definitions of green investments but is intended to allow more flexibility and market-led approaches to sustainable finance regulation.
The decision was made after receiving negative feedback from industry stakeholders during a consultation. Responses to the consultation came from various sectors, including the private sector, legal professionals, charities, and NGOs. The consultation on the introduction of mandatory transition planning strategies for financial organisations in the UK remains open until mid-September.
The controversy surrounding the EU taxonomy, particularly regarding the classification of certain economic activities like nuclear energy as sustainable, may have also played a role in the UK’s decision. The EU introduced its sustainable taxonomy in 2020.
[1] UK Government Announces Decision on Green Taxonomy [2] UK Government Shifts Focus Away from Green Taxonomy [3] Industry Stakeholders Express Doubts over UK Green Taxonomy [4] UK Treasury Concludes Green Taxonomy is Not the Most Effective Tool for Green Transition
- The UK government has decided to prioritize alternative strategies for addressing greenwashing and promoting environmental-science-based finance, due to concerns about the practical effectiveness and complexity of a green taxonomy, as well as the potential negative effects on business and the UK's competitiveness in global financial markets.
- Despite abandoning the efforts to create a unified green taxonomy, the UK government is committed to a series of measures designed to build partnerships with industry, foster the development of green and transition finance, and address the challenges of greenwashing, including market consultations, enhanced sustainability disclosures, and transition plan requirements aligned with climate goals.
