GTAG’s UK Taxonomy work continues – this time on treatment of green financial products and operational considerations for taxonomy reporting

Following on closely behind its August 2023 technical advice papers (see our blog post here), on 8 September 2023, the Green Technical Advisory Group (GTAG) published two further reports:

Report on the treatment of green financial products under an evolving UK Green Taxonomy

The objective of this paper is twofold. Firstly, it provides the GTAG’s recommendations on how activities previously considered environmentally sustainable, i.e., ‘green,’ are affected when the UK Green Taxonomy is implemented. Secondly, it covers how taxonomy-aligned activities, products and investments are treated as the taxonomy evolves over time.

The recommendations made to the UK Government in this paper include:

• Providing clarity prior to the Taxonomy’s implementation on how existing green products will be treated when the Taxonomy comes into effect, and how taxonomy-aligned products will be treated as the Taxonomy evolves over time
• To support this, a ‘grandfathering’ clause is recommended which provides a set time period for green debt issuers that will enable most green bonds and loans that are “green” or taxonomy-aligned at their time of issuance to remain aligned until maturity, and reduce lock-in risk for longer-term investments, if the criteria they are aligned to change
• For equity, the grandfathering clause should outline a set time period within which alignment to the Taxonomy’s criteria must be met if criteria change (with provision for extension for certain projects – such as infrastructure projects - to not limit investment in necessary activities)
• If existing green debt is refinanced, assessment should be made against the taxonomy for the latest, current criteria at the time of refinancing
• Government must work closely with the FCA to agree a consistent approach to green and sustainability bonds, including updating FCA guidance to support taxonomy alignment

Report on operational considerations for taxonomy reporting: assessing and dealing with data gaps and the use of proxies

The objective of this paper is to provide the GTAG’s recommendations on how to ensure data gaps are minimised to support more robust and decision-useful taxonomy disclosures, without placing undue burden on businesses. 

Key recommendations are consistent with the GTAG’s recommendations in its August technical advice papers and include: learning from the experience of other taxonomies in sequencing mandatory disclosures correctly such that sufficient information is available to those making taxonomy disclosures, and ensuring data requirements are mindful of companies with global activities (with consideration of how achievable data collection would be outside the UK). 

GTAG also recommends considering developing a reporting template to facilitate more consistent disclosures during the voluntary period.

In addition, the GTAG’s recommendations cover considerations on the use of proxies and estimates in taxonomy reporting.

What’s next?

The government is due to consult on the UK Taxonomy this autumn, following repeated delays having prevented it from meeting its earlier aim of having a taxonomy in place by the beginning of this year.

Background and materials

Click the links below for access to the GTAG advice papers:

• Treatment of green financial products under an evolving UK Green Taxonomy
• Operational considerations for taxonomy reporting: assessing and dealing with data gaps and  the use of proxies