The UK’s green technical advisory group (GTAG) has published its first set of advice to the government on the development of its green taxonomy, including a warning to avoid lobbying by vested interests who seek to “soften” technical screening criteria (TSC) or “water down” the do no significant harm (DNSH) requirements.
Set up in 2021, GTAG is chaired by Green Finance Institute executive director Ingrid Holmes and includes members from across academia, the real economy and the investment world, alongside a panel of taxonomy and data experts. It was established to provide non-binding advice to the government on the implementation of the UK’s taxonomy.
The group said the taxonomy should strive to be at least as ambitious as the EU taxonomy, and that it needed to remain science-based, with any deviations in technical screening criteria (TSCs) evidenced and published, “as this would help keep the focus on the science and not matters of industry convenience”.
Holmes wrote in the introduction: “A robust and science-based green taxonomy will also ensure that the UK’s globally focused financial sector, which has some of the deepest pools of internationally oriented capital, is well-placed to take advantage of growth in the global green finance market, which has increased from $5.2 billion in 2012 to more than $540 billion in 2021.”
‘Extra costs and disincentives’
The GTAG advice acknowledged that there would be some deviation from the EU taxonomy, as the UK’s version would be based in local law, but warned that deviating too far from taxonomies in other jurisdictions would create “extra costs and disincentives for international investors in the UK”, which could in turn result in increased costs and confusion for beneficiaries.
While the GTAG has recommended against the inclusion of gas, there have been reports that chancellor Kwasi Kwarteng is “keen” to see it included, and the UK’s Department for Business, Energy and Industrial Strategy has said there is “strong evidence” for the inclusion of nuclear. Today’s advice mentions neither by name but contains repeated references to ensuring a science-based taxonomy.
When it comes to the implementation of the EUs TSCs, GTAG suggested that the government should take the approach of “adopt some and revise some”.
In practice, according to the group, this would involve the majority of EU TSCs being onshored as soon as possible and adopted, subject to the substitution of equivalent UK legal and regulatory reference points for those which currently refer to EU legislation and regulation.
The small set identified by GTAG as requiring revision prior to adoption were flagged as problematic “because either they don’t align with the UK’s net-zero strategy, or they represent significant challenges for implementation”.
Homing in on DNSH, members have also been exploring whether a review and revise approach to the requirements within TSC is merited in order to streamline and improve their usability.
“Under this option, each DNSH TSC will be examined and then amended or streamlined if needed. To ensure Taxonomy alignment, activities will still need to meet these streamlined DNSH requirements – with the key difference that they should be easier to assess, understand and comply with,” noted the report.
According to GTAG, many of the DNSH criteria reference specific EU laws “and could therefore create issues regarding how they are applied within the UK green taxonomy, as well as ensuring its interoperability with taxonomies developed outside the EU”.
The advice also includes a section dedicated to the technical screening criteria for adaptation investment, which warns that the current criteria primarily mirror that of the EU and as such “focus on processes rather than outcomes”.
There is currently a “significant gap” around what actual impacts and outcomes the criteria is seeking to achieve, it continues. Unless the government intervenes to close this gap, the taxonomy “risks catalysing only a fraction of the adaptation and resilience-focused investment the UK needs”.
To ensure these issues are addressed, the advice recommends the government look to the EU’s experiences. The EU has established an adaptation strategy to facilitate investment. GTAG said it had advised the government to set up an adaptation working group to design an “enhanced set” of technical screening criteria and develop investment-enabling policies in the area.
James Alexander, CEO of the UK Sustainable Investment and Finance Association (UKSIF) and a GTAG member, said he hoped the guidance would provide clarity to UKSIF’s members. He called on the government to “quickly restate the UK’s commitment to moving ahead with implementing a taxonomy”, warning further delays left the UK behind other jurisdictions in its leadership on green finance.
GTAG said it planned to provide further updates on its work, and would publish more recommendations later this year.