The Centre for Climate Engagement (CCE) at Hughes Hall, University of Cambridge, has submitted a response to HM Treasury’s UK Green Taxonomy Consultation, drawing on its expertise in climate law and governance. Authored by Nick Scott and Sofie Surraco, the response provides insights on the taxonomy’s role in supporting a sustainable financial system.
Certain responses are informed by a March 2024 roundtable, co-hosted by CCE and Clyde & Co, which brought together legal, financial, and policy experts to explore the practical and regulatory implications of green taxonomies (read our event summary). This engagement reflects CCE’s commitment to ensuring that a UK Green Taxonomy is a robust, effective tool that enhances sustainable finance, supports climate action, and integrates well with broader policy frameworks.
Key points from our response:
- Supporting Green Finance & Preventing Greenwashing: A UK Green Taxonomy can help direct sustainable investment and reduce greenwashing by providing clear criteria for ‘green’ and ‘sustainable’ financial products. However, its effectiveness depends on design clarity, consistency with existing regulations, and integration with other climate policies.
- Challenges & Risks in Taxonomy Design: Key risks include misclassification of activities, complex or ambiguous criteria that hinder decision-making, and misalignment with international taxonomies, which could create confusion for global market participants. Addressing these issues is critical to ensuring the taxonomy enhances, rather than complicates, the policy landscape.
- Interplay with Other Policies: While green taxonomies serve a distinct role, they should complement alternative policies such as green bonds and financial incentives which are proven to be effective in reducing emissions. Legal frameworks like consumer protection laws and financial regulations also provide enforcement mechanisms against greenwashing, potentially offering greater flexibility than a taxonomy.
- Enhancing Transition Finance: A UK taxonomy should be designed to facilitate transition finance by setting credible definitions aligned with net-zero pathways. It should also be applicable to a broad range of financial instruments, mirroring successful international approaches like the EU’s Green Bond Standard.
- Alignment with International Standards: Interoperability with other taxonomies, particularly the EU’s, is key to reducing compliance costs and ensuring consistency for businesses operating across jurisdictions. Where differences exist, they should be justified by specific UK needs while maintaining alignment where possible.
- Lessons from Other Taxonomies: The UK should learn from litigation challenges faced by the EU Taxonomy, particularly around the inclusion of natural gas. Litigation can create uncertainty, erode investor confidence, and undermine the taxonomy’s credibility. A clear, legally robust classification system is essential.
- Updating the Taxonomy: Given the fast pace of technological change, a UK taxonomy should be reviewed every three years, which aligns with transition planning frameworks. However, a ‘grandfathering’ clause is recommended to provide market certainty and avoid disrupting transition plans.
View further details of the consultations on the Government website.
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