UK taxonomy

The UK has committed to being climate-neutral by 2050 and has set out its 'roadmap' in support of this aim. But transitioning to a low-carbon, more sustainable economy requires significant investment. In 2021 the Office for Budget Responsibility estimated that the costs for the UK to become climate-neutral by 2050 would be in the region of £1.4 trillion. To help redirect the necessary investment towards sustainable projects and activities, the UK has recognised the need for a common language and clear definitions of what is sustainable.

What is the UK's Green Taxonomy?

In October 2021 the UK Government published its 'roadmap' – Greening Finance: A Roadmap to Sustainable Investing in which it set out its plans to develop a new Sustainability Disclosures Regime (SDR) and a Green Taxonomy. 

The Green Taxonomy is a classification system which sets out a list of environmentally sustainable economic activities and which provides companies, investors and policymakers with appropriate definitions for activities that can be considered environmentally sustainable. It is based on the EU Taxonomy Regulation which came into force in 2020 but instead of adopting the Taxonomy Regulation wholesale, the UK Government adopted parts of the framework set out in the EU Taxonomy Regulation with appropriate amendments whilst disregarding the disclosure obligations and the detail of the technical screening criteria (TSC). This allowed the UK Government time to consider its approach to sustainable finance disclosures.

The Green Taxonomy covers the same 6 environmental objectives as the EU Taxonomy: (i) climate change mitigation, (ii) climate change adaptation, (iii) the sustainable use and protection of water and marine resources, (iv) the transition to a circular economy, (v) pollution prevention and control and (vi) the protection and restoration of biodiversity and ecosystems and for each of these environmental objectives TSC will be set that demonstrate how the activity makes a substantial contribution to the relevant environmental objective. Reporting will form part of SDR disclosures made or to be made by certain businesses. Legislation relating to the TSC for the climate change adaptation and mitigation objectives is expected to come into force in early 2023 with the legislation for the TSC for the remaining objectives following in 2024.   

Who does it apply to?

Reporting against the Green Taxonomy will form part of a business's SDR disclosures.  SDR requires disclosures by corporates, asset managers and asset owners and the creators of investment products centred around the four key themes identified by the Taskforce on Climate-related Financial Disclosures (TCFD) Recommendations: (i) governance, (ii) strategy, (iii) risk management and (iv) metrics and targets. These entities are, in many cases, already required to comply or explain why they are not complying with the TCFD recommendations. Consultations are on-going to extend the ambit of the reporting such that companies (including those in the financial services sector) will need to make sustainability disclosures in accordance with international standards and using the proposed Green Taxonomy, asset managers and asset owners will be subject to new requirements to disclose how they take sustainability into account and entities that create investment products will need to report on the sustainability impact as well as the financial risks and opportunities of those products.

Challenges

Even though your organisation may not, at present, be required to comply with the UK's sustainable finance disclosure regime, your funders and investors or other stakeholders may be required to do so or be focussing their efforts on supporting organisations who have sustainability at the top of their agenda.  But being able to assess your activities to determine what proportion of them are Taxonomy-aligned and then providing this information, as well as the supporting data, is not without its challenges. Neither is complying with sustainability reporting requirements. There is a lack of internal expertise in many organisations and the cost of complying may also be high. Embedding this type of risk assessment into your business strategy may also require real organisational change. It’s a change that needs to happen from the top down and isn't something that can happen overnight.

How we can help

Our highly skilled teams of specialists in areas such as green, social and sustainable finance, impact investment and blended finance, governance, employment and corporate can assist you in considering what organisational changes need to be made in order for you to move towards being able to comply with the applicable reporting requirements.

Strategic review

Understanding your business is the key to understanding what your organisation needs to do in order to comply with the applicable reporting requirements. We will get to know you and your team and work with you to assess what changes need to be made.

What is involved

Our experts will work with you to help you assess your readiness to comply with the applicable reporting requirements. We can assist with reviewing sustainability targets and progress towards achieving those targets as well as developing sustainability policies. You know your business best and we can help shape the targets and policies that will work for you. We can provide training on areas of interest to your executive team/board members.

What it will help you to achieve

Knowing what your proportion of your organisation's activities are considered environmentally sustainable and being able to report this data as well as complying with other non-financial reporting requirements demonstrates your awareness of and commitment to managing the risks which we all face as a result of climate change, natural habitat destruction and other economic activities and will make for a more resilient company attractive to a wider variety of stakeholders