Final Advice on UK Green Taxonomy
The Green Technical Advisory Group (GTAG) has released final advice on the UK Green Taxonomy, aiming to promote regulators to improve the green financial system.
GTAG stated that nearly 50 green taxonomies are currently being implemented around the world, which confirms that financial supervision needs to adapt to the sustainable environment. A scientific, comprehensive green taxonomy can drive the development of sustainable investing in the UK and enhance the integrity of information disclosure.
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GTAG believes that regulators can establish an advisory body in the near future to study the specific content of the green taxonomy and initiate legislative work in the medium term to provide investors with a sound environment.
Background of the UK Green Taxonomy
In A Roadmap to Sustainable Investing released in 2021, regulators stated that taxonomy will be reviewed every three years in order to maintain their effectiveness. In the Green Finance Strategy released in 2023, the regulator recommitted to implementing the green taxonomy and launched consultation in this year.
GTAG studied taxonomies in other jurisdictions and found that how entities are selected to designate green taxonomies is a key issue for policy development. This entity needs to understand the development of transitional finance and correctly classify economic activities to reduce the emergence of problems such as greenwashing. For example, the European Union has established the Platform on Sustainable Finance (PSF), which allows stakeholders to submit suggestions and improve the taxonomy.
GTAG’s Perspective on UK Green Taxonomy
GTAG plans to establish an institutional home based on the EU PSF, allowing the institution to draft the Green Taxonomy, track green financial activities, and provide recommendations on whether other environmental and social goals should be included in the taxonomy. This platform can also take over the responsibilities of the Transition Plan Taskforce and provide assistance for transition planning.
GTAG provides three disclosure schemes for the Green Taxonomy, namely:
- Disclosure through the Company Act: The green taxonomy can be disclosed in the Statutory Instrument in the Company Act.
- Disclosure through the Financial Conduct Authority (FCA): The green taxonomy can be disclosed through modifications to the Listing Rules and Prospectus Regulation Rules Sourcebook.
- Disclosure through voluntary means: The green taxonomy can be disclosed through official or unofficial websites, and gradually moves closer to regulatory agencies and turns to mandatory disclosure.
Recommendations for Developing a Green Taxonomy
GTAG believes that the best way to establish a green taxonomy is for the government to establish an advisory body and cooperate with other departments to establish a taxonomy framework. The responsibilities are as follows:
- Committee on Climate Change: While reporting carbon emissions and climate change matters to regulatory agencies, it can provide professional advice on climate change mitigation and climate adaptation.
- Environment Agency: Although it does not have experience in financial markets, it can use its professional knowledge in environmental protection and climate change to provide a basis for the classification of economic activities.
- Financial Conduct Authority: Participate in the development of green taxonomy, maintain the integrity of the financial system, and protect the interests of investors. FCA can issue consultation documents for financial industry and promote the development of sustainable finance through the design of a green taxonomy.
- Audit, Reporting and Governance Authority: Ensure the standardization of the green taxonomy and its incorporation into corporate governance codes.
GTAG stated that the advisory body established by the government can choose voluntary disclosure in formulating the green taxonomy, and gradually change it to mandatory disclosure in the future. This option can provide participants with sufficient time, obtain resources from regulators, and promote the development of the green financial system.
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