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Regulatory Briefing: investors urge UK policymakers to create green and social taxonomies

By Victor Smart

The UK must create its own “world-leading” green taxonomy and a values-based social taxonomy, the UK Sustainable Investment and Finance Association has urged. This is among the new measures it proposes in a report called ‘Delivering a Net-zero Financial Centre’. Other recommendations include increasing disclosure requirements on unlisted companies and getting the UK’s Prudential Regulatory Authority to consider tough action against investments in fossil fuels.

The document is the fruit of extensive discussions with UKSIF members, which the association says have more than £10tn in assets under management. 

Like the EU, minus gas. UKSIF chief executive James Alexander told Sustainable Views: “A green taxonomy is a really important part of how we can tackle the allegations across the industry of greenwashing. If you are marketing your funds as sustainable, you’re saying that your fund is trying to do things that are really positive. So how do you prove that? Well, the answer is that it’s aligned with the green taxonomy, which is what a whole bunch of experts and scientists and others have come together to say.” It’s reassuring to hear that he believes that 99 per cent of a UK green taxonomy would be the same as the EU’s, with those important exceptions such as the exclusion of gas.

It’s complicated. Some will be pleased to see UKSIF press for a green taxonomy, others dismayed. Now that Britain has left the EU, there is a clear gap in its sustainability rules and chancellor of the exchequer Rishi Sunak first announced the UK would create its own green taxonomy back in November 2020. But the experience with the much-vaunted EU green taxonomy has scarcely been plain sailing. The whole process to categorise which sectors are deemed ‘green’ has grown hugely cumbersome, and recently Brussels had to alter radically the overly binary structure. Separately, as a result of political pressure, the EU has also proposed treating gas as being green – a move UKSIF would not want the UK to follow.

Money for values. Things get trickier still with moving from the “science-based” green taxonomy to a “values-based” social taxonomy spelling out what is and isn’t sustainable at a societal level. But here Alexander thinks a standalone UK taxonomy might be simpler: “Trying to get a values-based taxonomy that works for the whole of Europe is obviously much more difficult than trying to get a values-based taxonomy that works just for the UK. And so I think we might have an opportunity to put something together that does respond to the values that we have here and the sorts of things that we care about.”

UKSIF sets out a range of policies that would assist the UK to meet its avowed net-zero goal made at COP26. Other objectives are strengthening investors’ stewardship role in the economy and shifting the whole financial sector and economy to net-zero, including parts of the system that have not yet been prioritised in rulemaking.


A service from the Financial Times