Delivering on the UK’s ambition to become the world’s premier hub for green and transition finance offers significant economic benefits, with the CBI finding that delivering on net zero could unlock upwards of £104 billion of inward investment by 2040.
E3G’s response to HM Treasury’s consultation on the use cases for a UK Green Taxonomy focuses on the role a UK Green taxonomy could play within the wider package of green growth enabling regulatory reforms, and recommendations on its governance and design to maximise its value if the government does decide to proceed with this policy.
Mobilising capital requires government and regulators to pull together as one, developing a whole of economy plan, deploying a range of levers, and updating the UK’s regulatory landscape to be appropriate for the 21st century and attractive to investment.
This package should include the wider UK SRS, ISSB adoption, mandatory 1.5C-aligned transition plan disclosures and the development of robust transition finance principles following recommendations of the Transition Finance Market Review (TFMR).
Within this UK transition industrial policy suite, a UK Green Taxonomy could potentially support specific functions such as:
- Guiding investment at activity level and (with relevant disclosure requirements linked to transition planning) at entity level.
- Enabling tracking of green investment at macro level
- Helping to tackle greenwashing by providing clarity on what a credible green investment is.
If the UK does progress ahead with developing its own Green Taxonomy, it must take steps to ensure that it is impactful and additive in driving capital towards the net zero transition. This requires the taxonomy to be:
- Science-based, responsibly governed and updated periodically by a credible body. Above all, the UK Green taxonomy must be science-based, excluding gas and other fossil fuels, and prioritise usability. This would require there to be a clear owner of the taxonomy who could convene sectoral experts and scientists to develop and regularly update the taxonomy – ensuring its credibility and usability.
- Implemented alongside other key levers and regulatory updates to mobilise capital at the pace and scale required. Alongside disclosure requirements, the taxonomy must be embedded within a wider whole of economy plan to mobilise net zero investment. An economy wide transition plan, underpinned by a Net Zero Investment Plan, will be essential to provide the regulatory, policy and strategic public investment incentives needed to mobilise capital at scale across the UK.
- Interoperable with global taxonomies, particularly the EU. This will be vital to minimise reporting burden and boost business value.
