Green Technical Advisory Group issues first recommendations to UK government on the Green Taxonomy

The Green Technical Advisory Group (GTAG) has published its first set of independent advice to the UK government on the design and implementation of a UK Green Taxonomy. The paper has been published prior to the government’s anticipated consultation later this year on the Technical Screening Criteria (TSC) for the first two of the six environmental objectives of the UK green taxonomy. Further work completed over the last 15 months will follow before the end of the year.

The advice in this paper focuses on the following four areas:

1. how to approach onshoring the EU framework, on which the UK Green Taxonomy is based, at a time when the UK Government has set out a policy ambition to move further, faster than the EU in some areas of climate action;
   
   
2. optimising the taxonomy's international interoperability, given 80% of UK-managed assets are invested in international capital markets;
   
   
3. streamlining Do No Significant Harm (DNSH) to be usable and useful for reporting entities; and
   
   
4. setting out wide range of potential taxonomy use cases.

Recommendations: Points of interest 

• Onshoring the EU TSC: GTAG recommends that the government should take an “adopt some and revise some” approach. This approach builds on the view that the focus of taxonomy use should be on investors and financial market participants, as well as regulators. Since many UK financial market participants will also be subject to the EU framework, close alignment with the EU TSC will limit divergence and market fragmentation. However, a number of TSC may be incompatible in the UK and therefore require urgent revision. The GTAG also recommends a set of principles is used to guide the UK's TSC revision process.

• Avoiding deviations: Large deviations from the EU Taxonomy which would make the UK Green Taxonomy substantially different should be avoided, or at least would require substantial benefits to be identified. The larger the deviation being considered the more thought should go into its design so that any mitigants to cost can be employed and benefits maximised. Similarly, the complete portfolio of divergences needs to be assessed in order to gauge its significance. Furthermore, the UK Green Taxonomy should not only consider its deviations from the EU Taxonomy but any significant deviations from other taxonomies in major jurisdictions. The UK criteria should be internationally comparable; meaning it is threshold-based or process-based and measurable.
  
  
• Significant gap: There is currently a significant gap around what actual impacts and outcomes the UK’s TSC is seeking to achieve. Unless the government intervenes to close this gap, the UK Green Taxonomy risks catalysing only a fraction of the adaptation and resilience-focused investment the UK needs.
  
  
• Do no significant harm (DNSH): There are more than 700 individual DNSH criteria included in the EU TSC. Many reference EU laws, which could create issues about how they are applied within the UK Green Taxonomy, as well as ensuring its interoperability with non-EU taxonomies. The GTAG has explored whether a review and revise approach to DNSH requirements within TSC is merited to streamline and improve their usability.
  
  
• International operability: The GTAG notes a more timely and clear process could be created for updating the UK Green Taxonomy and that it should be grounded in evidence and science-based criteria.
  
  
• Taxonomy use cases: The report contains a summary list of use cases, with the GTAG noting that public and private companies, as well as limited liability partnerships (LLPs), should be the primary focus. Requiring firms to report their level of UK Green Taxonomy alignment as part of wider climate reporting will help address data gaps and greenwashing concerns.
  
  
• Amending the timetable of the UK Green Taxonomy: The paper provides no update on when we can expect the UK Green Taxonomy. However, the GTAG recommends that, given recent governmental changes, the original timetable needs to be amended to allow time for a full market consultation and that the market needs to be informed about the new timetable as soon as possible.

The GTAG was created in 2021 to provide advice to the government on implementing a UK Green Taxonomy. Read our earlier blog post for more.