UK ditches planned green taxonomy to focus on transition finance

Experience of ‘other taxonomies’ has made national version unpopular, says government, as it announces ‘transition finance pilot’ instead

The UK government has abandoned plans to develop a national green taxonomy for companies and investors.  

The announcement was made as part of a new strategy to boost financial services growth and competitiveness, unveiled in chancellor Rachel Reeves’ annual Mansion House speech today. 

The taxonomy would have defined which economic activities align with the UK’s climate and environmental objectives.

It’s been in the pipeline for around five years, but the government said it was not a popular concept during a recent consultation, and wouldn’t be the “most effective tool to deliver the green transition”.  

More favourable policy levers include sustainability disclosure standards and transition plan requirements, which the UK recently moved ahead with, as well as real-economy tools like sectoral decarbonisation pathways and subsidies.   

Negative sentiment towards a UK taxonomy was “primarily driven out of experience of working with other taxonomies”, according to the Treasury. 

The EU’s version has been riddled with challenges since it was introduced in 2020, with critics accusing it of being too granular and providing little benefit to companies. 

It was deemed one of the least impactful tools for supporting sustainability in a survey of more than 800 experts, published today, and is in the process of being significantly pared back. 

Transition finance pilot

The UK Government reiterated its commitment to scaling up transition finance and voluntary carbon and nature markets, confirming that it would respond later this year to a consultation on the latter.

On the former, it announced today that it would “spearhead a transition finance pilot” in coordination with the country’s financial regulators and the Green Finance Institute.

The pilot is expected to focus on aligning policy, regulation and private capital to help the country’s economy decarbonise.