By Liam Edwards

The Green Technical Advisory Group (“GTAG”) published a report outlining its advice to the government on developing a UK Green Taxonomy, a framework that will set the bar for investments that can be considered environmentally sustainable. Published on 7 October 2022, the report is available in full here. Alongside this report, GTAG has also published an explanatory press release.

The report provides GTAG’s analysis on how the UK can further develop existing taxonomies, particularly the EU Technical Screening Criteria (the “EU TSC”). GTAG argues that “introducing a Green Taxonomy will build upon the UK’s strong track record in world-leading environmental and green finance policy”, and that “delivering a robust and science-based Green Taxonomy is the crucial next step in the UK’s green finance journey”.

GTAG analysis and advice

The report considers the following key aspects:

• Onshoring the EU Technical Screening Criteria – GTAG recommends that the government should embrace an ‘adopt some and revise some’ approach to integrating the EU TSC in the short term. This builds on the view shared by both GTAG and the government that “the priority focus of taxonomy use should be on investors and financial market participants, as well as their regulators”, as close alignment with the EU TSC would mitigate the risk of market fragmentation.
• Do no significant harm (“DNSH”) – GTAG has been exploring whether a review and revise approach to DNSH requirements is merited. The EU TSC includes over 700 individual DNSH criteria, many of which cross-refer to EU legislation, meaning there is significant scope for friction in transposing them to the UK Green Taxonomy. Consequently, GTAG has considered whether a different, more streamlined approach to DNSH requirements would be practical, and has advised the government on possible consultation questions that could be used to gather market views on this possibility.
• International interoperability – GTAG has reviewed the international landscape of taxonomies to identify strengths and weaknesses of other schemes and incorporated these findings into its advice on the UK Green Taxonomy. GTAG notes that the costs and benefits of divergence from international schemes would depend on the direction, scale and nature of the divergence. Currently, GTAG has welcomed the government’s plan to consult on this point and intends to set out further recommendations in due course. 
• Taxonomy use cases – the report provides a list of use cases, with each assigned a priority grade. GTAG identify public companies, private companies, and LLPs as the desired primary focus. GTAG anticipate that the issue of data gaps for market participants can be mitigated by mandating that firms report on their degree of UK Green Taxonomy alignment at a company level.

Next steps

GTAG will be providing the government with further independent advice on topics related to the development of the UK Green Taxonomy, with its current mandate lasting for two years. Following this period, the government must either extend GTAG’s mandate or appoint new members to it.

A government consultation is anticipated on the first two of the six environmental objectives included in the UK Green Taxonomy, which are climate change mitigation and climate change adaption. GTAG expects the market input from this consultation to feed into its own analysis of the government’s approach on the UK Green Taxonomy.