The UK’s Green Technical Advisory Group (GTAG) has recently published several new pieces of technical advice for HM Treasury.
Established in 2021 to provide non-binding technical advice in respect of the development and implementation of a Green Taxonomy in the UK (as explained in this blog post), GTAG’s most recent advice includes the following papers published in August and September this year:
- Developing a UK taxonomy adapted to the UK’s needs in the short and medium term: Scope, coverage and reporting considerations
- Getting KPI’s right: Implementing an effective reporting regime for the UK Green Taxonomy
- Treatment of green financial products under an evolving UK Green Taxonomy
- Operational considerations for taxonomy reporting: assessing and dealing with data gaps and the use of proxies
We have summarised the key proposals relevant to financial institutions in this briefing. Given the potential impact on litigation risk in the financial services industry, we have also commented on the UK Green Taxonomy’s likely effect on sustainability-related litigation in the UK. In particular, we note that a clarification of what is and is not a sustainable activity, and how to present sustainability characteristics, could reduce the likelihood of litigation, but that assumes that the UK Green Taxonomy is drafted clearly and in a usable way.
The GTAG’s key recommendations include:
- Prioritising the delivery of a taxonomy that clearly defines ‘green’ environmentally sustainable economic activities, whilst leaving any potential extension to cover transition and harmful activities for a later stage;
- Considering expansion of taxonomy to a wider range of activities, including potentially in the space of financial and advisory services;
- Aligning taxonomy reporting with TCFD reporting, with corporates reporting ahead of financial institutions;
- Reassessing KPIs relevant to credit institutions and investors;
- Reassessing the approach to the green asset ratio (GAR) for credit institutions;
- Reporting at fund level for all funds, irrespective of sustainability-labels;
- Clarifying how existing and future ‘green products’ are treated as the taxonomy is implemented and evolves over time;
- Addressing challenges relating to data availability, consistency and reliability, including with respect to the ‘do no significant harm’ criteria; and
- Considering the development of templates for reporting.
Whilst GTAG’s focus is on the development of the UK regime, it recognises the importance of ensuring the UK approach is considerate of global differences in taxonomies and related disclosure requirements. For further details on these recommendations, please see our briefing.
The Government is expected to consult on the UK Green Taxonomy in Autumn 2023, which will likely involve further consideration of the above recommendations. We also expect the Government to work closely with the FCA as it develops its rules and guidance relevant to the UK Green Taxonomy.