Final advice paper from GTAG on the UK Taxonomy - this time on longer term governance arrangements

The Green Technical Advisory Group (GTAG) has published its final piece of advice to the UK government on the design and implementation of a UK Green Taxonomy, completing a suite of nine GTAG papers. This final paper acknowledges that questions remain about the long-term governance arrangements for the UK Green Taxonomy, including how and by whom it will be updated and how the question of whether it is appropriate to develop a ‘Transition Taxonomy' will be answered – with this in mind, it focuses on the options for creating an ‘institutional home’ for the taxonomy.

The paper sets out the following recommendations:

• For the government to establish an Advisory Body to support implementation and development of the Taxonomy through Executive action in the short-term (next 3-6 months). This could be achieved either by providing additional funding and responsibilities to an existing body (e.g., the Financial Reporting Council/Audit, Reporting and Governance Authority) or creating a new entity (e.g., “GTAG 2.0”). The rationale for this was it could support both voluntary and mandatory approaches to disclosure and, further, mandatory disclosures via either route to final implementation.  Given the uncertain landscape under which GTAG's advice is being provided, this is considered the "least regrets" option (particularly given the form of the disclosure approach will inform the "institutional home" options).
• In parallel, preparing for the medium term (post end-2024), the government should initiate the process of legislating for long-term statutory decision-making powers. Again, this could be through granting powers/responsibilities and financial support to an existing body or to create a new organisation.
• The paper assessed options for giving powers to an existing Advisory Body. It concluded that the FRC/ARGA appears to be a good fit and strong option to further explore as the taxonomy’s institutional home.

A new or existing Advisory Body?  What about the FCA?

The paper discusses the role of the FCA in the context of the UK Green Taxonomy. It recognizes the FCA's role in promoting transparency and ensuring that firms have appropriate systems and controls in place to manage climate-related risks. There is recognition of the FCA’s strategic objective to ensure that markets function well, with specific operational objectives in relation to consumer protection, protecting the integrity of the financial systems and promoting effective competition in the interests of consumers, and a further objective to facilitate the competitiveness and growth of the UK economy (and its large and growing remit that includes having regard for government ambitions on sustainable finance. Nonetheless, while the FCA Handbook does seem to be a potential option to reference UK Green Taxonomy-related disclosures, GTAG’s view is that developing out a UK Green Taxonomy does not appear to sit well with wider existing FCA capabilities and functions.

The Committee on Climate Change and the Environment Agency are similarly discounted.  Instead the FRC/ARGA is seen as a more suitable option.

The full paper 'Creating an institutional home for the UK Green Taxonomy: exploring options' can be found here.

The press release is available here.

A closing statement from the Chair of the GTAG can be accessed here.