What is the UK Green Taxonomy?
The UK Government has set out a group of guidelines that indicate whether economic activity is sustainable or not. The taxonomy has been put in place to help companies to get in line with the targets set within the Paris Agreement. For an investment or an economic activity to be considered sustainable it must be ‘taxonomy-aligned’.
The Taxonomy aims
- Create clarity and consistency for investors in order for them to compare companies based on their environmental performance and the impact they have on the planet.
- Improve the understanding of a companies’ environmental impact in order to see how sustainable they really are.
- The taxonomy will provide a reference point for companies as an informative performance target.
In order for the taxonomy to be successful the UK Government has made sure that the Green Taxonomy will be scientific in its approach and be heavily evidence based in order to successfully measure sustainability. The taxonomy has been accessible to both investors and businesses to help make more sustainable financial choices. In order for the UK to transition easily into a greener financial state, the taxonomy has been built to support those in the UK.
The taxonomy’s objectives
The UK Government has assigned six environmental objectives, each one is underpinned by the Technical Screening Criteria (TSC), which outlines the requirements for economic activity to be sustainable.
The objectives include:
- Climate change mitigation – Stabilisation of greenhouse gas emissions consistent with the Paris Agreement and net zero by 2050.
- Climate change adaptation – Reducing the risk of adverse impact of current or future climate change on an economic activity, people, nature, or assets.
- Sustainable use and protection of water and marine resources – Contribution to the good environmental status of bodies of water or marine resources or preventing their deterioration.
- Transition to a circular economy – Maintaining the value of products, materials and resources for as long as possible, thereby reducing the environmental impacts of their use.
- Pollution prevention and control – Including preventing and reducing emissions or adverse impacts on health, improving levels of air water and soil quality.
- Protection and restoration of biodiversity and ecosystems – Protecting, conserving, or restoring biodiversity or to achieving the good condition of ecosystems, or preventing their deterioration.
The three tests
In order for economic activity to be accepted as being sustainable it must fall into the UK Government’s three test categories:
- It must make a substantial contribution to one of six taxonomy’s environmental objectives
- It must not do significant harm to the other objectives
- It must meet a set of minimum safeguards, including those set out by the OECD Guidelines for Multinational Enterprises, and the UN Guiding Principles on Business and Human Rights