A report by the All-Party Parliamentary Group on Environmental Social, and Governance calls for a credible Green Taxonomy to build confidence and leverage Green investment in the UK, and worldwide, as well as tackle greenwashing.

The UK is following the EU in introducing a Green Taxonomy to help combat greenwashing by improving environmental reporting. The APPG on ESG has published this report (attached) to address two concerns: First, that the UK is modelling its Taxonomy on the EU’s, which has become controversial, largely due to the inclusion of natural gas; secondly, that the momentum from the COP26 presidency is beginning to evaporate – more than a year after HMG published a landmark green finance roadmap there is still no Taxonomy. For the report, the APPG consulted dozens of experts to establish guiding principles and help the Government deliver a Taxonomy that is fit for purpose (see recommendations at further down).

Alexander Stafford MP, Chairman of the APPG on ESG:

“It is almost a year since an almighty row broke out in the EU over the inclusion of natural gas and nuclear power in the EU taxonomy, amid intensive lobbying from national capitals. The fact that lobbying is such a prominent aspect of the EU Taxonomy is telling and illustrates why the UK must put science first. If we do follow the science, we will deliver a credible instrument that successfully leverages green investment, both at home and abroad.

“The UK has made a good start in adopting the framework of the EU Taxonomy, setting out a roadmap for consultation and marrying the Taxonomy with new disclosure requirements that will be hugely beneficial for ESG. However, I would like to see a great deal more urgency. ESG is a sound and balanced principle that drives more responsible economic output. But we need policy tools like the taxonomy and disclosure requirements to take us up a level and effectively tackle greenwashing, the scourge of ESG.

“I fully recognise that designing and implementing a complex, vast instrument like a Taxonomy is challenging, but we should be optimistic. The UK is home to the City of London. I want to see market participants in the Square Mile contributing to the Government’s development of the Taxonomy the way they did so expertly to the APPG’s report. The same applies to Britain’s world class scientific and engineering expertise.

“And we must not lose sight of the benefits here. The Taxonomy will play a critical role in making the markets work to deliver net zero. Investors, both retail and commercial, want more responsible companies and funds to put their money into. It is for us parliamentarians, Government and regulators to provide credible, balanced and ultimately trustworthy mechanisms like the Green Taxonomy that will in turn drive investment in the right direction, while also supporting the proliferation of climate-related data that is accurate and comparable.

“The APPG has spent the past eighteen months exploring many different aspects of ESG, and we consistently come back to the same issue: the need for accurate and comparable data. The Taxonomy will help deliver that, but at the same time, the UK needs to be vigilant in ensuring stakeholders understand the Taxonomy’s purpose and limits, and how to use it. Meanwhile, I urge the Government to concentrate on delivering the Taxonomy in a timely fashion.

“We also have to be mindful of the dangers here. The profile of ESG has risen markedly over the past year, but we have also seen greenwashing scandals bringing ESG into disrepute. If the Government and regulators do not step in effectively to marginalise greenwashing, whether the inadvertent or cynical kind, then pessimism will grow and the opportunity to align investment markets with environmental goals will be missed.”

Key recommendations of the report:

• For the Taxonomy to be, first and foremost, science-based, and therefore credible, meaning that natural gas should not be included in the Taxonomy as a transitional fuel or otherwise.
• For the UK Government, both release the Taxonomy consultation and launch the Taxonomy as soon as possible.
• The UK Government should prioritise wide consultation with scientific experts as well as market practitioners to ensure the Taxonomy is both credible and usable.
• Interoperability is the third important consideration, markets are global, and the Taxonomy needs to be as familiar as possible to companies and investors worldwide.
• The UK should begin exploring options for a transitional instrument so that a greater proportion of the economy is accounted for, driving transition on a much greater scale.

See headline recommendations in full on p8 of the report.

Download report