Taxonomy delay has enabled UK to understand ‘teething problems’

The UK may be lagging behind jurisdictions such as the EU on implementing a taxonomy, but this has enabled the UK to observe issues that the EU has experienced, said Ryan Jude, green taxonomy programme director at the GFI.

“We can understand teething problems that have been experienced in the EU. We can also take the positives from the EU, and make it more efficient.

“With the taxonomy, one thing that we said quite early to the UK government is: align as close as you can to the EU in terms of its ambition, its structure, its framework; and then the bits that aren’t quite working, fix them before you’ve made it into law.”

For example, a report by the Principles for Responsible Investment highlights how investors are required to report on the level of alignment of their investment products with the EU taxonomy; but this is before companies that fall under the EU’s Non-Financial Reporting Directive have been mandated to report their own alignment with the EU taxonomy.

However, there are also disadvantages to being behind on green finance developments.

Jude cited industrial strategies such as the Inflation Reduction Act in the US, and the EU adapting state aid rules to attract investment.

“We’re already seeing investors who are looking very favourably at the likes of the US and the EU; because, at the end of the day, they have a certain amount of capital that needs to be deployed, and they’re not necessarily going to wait around.”

Then-chancellor Rishi Sunak first announced the UK would implement a green taxonomy in November 2020.

In the following year, the Treasury announced the appointment of the Green Technical Advisory Group, chaired by the GFI, to oversee the government’s delivery of a green taxonomy.

The Treasury has defined a green taxonomy as a common framework setting the bar for investments that can be defined as environmentally sustainable.

Chloe Cheung is a senior features writer at FTAdviser