Green Technical Advisory Group urges Ministers to deliver long-awaited green finance taxonomy and ensure international interoperability for sustainable investing standards
The government has this week been urged to move swiftly to deliver on its goal to establish the UK as the world's first net zero emission financial centre, as experts warned that "with the US and EU raising the stakes through massive green subsidy push, the UK will need to significantly raise its game to attract capital through strengthened global investment credentials".
The warning came from the Green Technical Advisory Group (GTAG), which has been appointed to advise the government on the design and implementation of the UK's Green Taxonomy that aims to clarify which investments and assets qualify as sustainable.
Late last year, the UK government announced it would review its approach to taxonomy development and as such would not deliver secondary legislation under the original timeline of January 2023. The delay came as the government weighed controversial proposals to include nuclear and even gas projects in the green taxonomy, sparking criticism from environmental groups.
However, yesterday the GTAG stressed that the government needed to finalise its taxonomy soon or risk seeing investment migrate to the US and EU.
"Strengthening the UK's global investment credentials by setting clear standards in green finance is key to catalysing investment into the green jobs and industries of the future, as recently highlighted in the Rt Hon Chris Skidmore MP's Independent Review of Net Zero," the group said. "It will also secure the UK's leadership on green finance and competitiveness, as new initiatives like the US Inflation Reduction Act and the EU Net Zero Industry Act, attract global capital."
The intervention came as the GTAG, which is chaired by the Green Finance Institute, published a report calling on the government to ensure that the new taxonomy is broadly interoperable with other green taxonomies around the world, warning that regulatory proliferation risks making it more difficult and costly for investors to invest in green assets.
The group said that over 30 taxonomies are now in development or being implemented around the world, meaning there is a significant risk of market fragmentation where taxonomies are not aligned or interoperable. "This undermines efforts to promote cross-border green capital flows and investment in green assets in the UK and elsewhere," it warned.
Ingrid Holmes, chair of GTAG, and executive director at the Green Finance Institute, said the UK could play a critical role in ensuring that the myriad new taxonomies are broadly interoperable.
"Building on its strong track record in world-leading green finance policy, the UK is well placed to help address the challenge of global market fragmentation, while at the same time securing its leadership on green finance through a scientifically robust and usable taxonomy," she said. "This is particularly important given the UK's globally focused financial sector, which has some of the deepest pools of internationally oriented capital, with 7.2 per cent of the global total of foreign listed companies listed in London. But the UK must act now."
The new paper - titled Promoting the International Interoperability of a UK Green Taxonomy - sets out a series of recommendations for how the government could enable international interoperability without compromising the robustness or science-based nature of a UK Green Taxonomy.
For example it calls on the UK government to advocate globally for harmonisation across taxonomies where possible, and support the development of a list of core green economic activities that can be deemed equivalent to the UK Green Taxonomy through its engagement with the G20 Sustainable Finance Working Group, Network for Greening the Financial System, International Sustainability Standards Board (ISSB), and International Platform on Sustainable Finance.
It also proposes that the government should conduct three-yearly reviews that assess the UK Green Taxonomy against the evolving international taxonomy landscape, to assess whether there are any adjustments required to ensure the Taxonomy continues to reflect changes to the real economy, including potential new sectors and technologies that should be adopted for inclusion.
And it argues that to promote international comparison - if not interoperability - in the short-term, the government should "adopt green taxonomy-related rules that cover assets held in as many jurisdictions as possible, regardless of the existence of any local green taxonomy" and develop and publish a list of equivalent units, where needed, in the first instance, to allow for differences in the measurement practices carried out in respective jurisdictions and help with the comparison of data.
The Treasury was considering a request for comment at the time of going to press.
