The UK will not develop a domestic green taxonomy after the government acknowledged a lack of public demand for such a framework.

The government has concluded that “other policies were of higher priority to accelerate investment into the transition to net zero and limit greenwashing”, as part of the Treasury’s 10-year growth strategy for the UK financial sector published on Tuesday.

This brings an end to a multi-year project intended to develop such a framework, including the appointment of expert advisory group the Green Technical Advisory Group (GTAG) in 2021 to oversee taxonomy development.

Part of the GTAG’s remit was to streamline the do no significant harm (DNSH) hurdle requirement introduced by the EU taxonomy, which the body identified as a significant bottleneck to adoption. Reforming DNSH was seen at the time as a way to put “the UK at the forefront of the drive toward global green taxonomy harmonisation”.

The UK government noted that a consultation which explored “the value case” for a taxonomy held earlier this year did not reveal significant public support for a domestic taxonomy, in a response also published on Tuesday.

“Whilst our ambitions to continue as a global leader remain unchanged, the consultation responses showed that other policies were of higher priority,” it said.

The response noted that despite some positive feedback, “the distinct value of a UK Taxonomy over and above other policy was not clear”.

Around 45 percent of consultation responses showed a “positive sentiment” toward a UK taxonomy, while 55 percent “had a mixed or negative sentiment”.

Notably, only 14 of the total 150 respondents were classified as investors.

Concerns over the taxonomy were “largely centred” around the experience of applying existing taxonomy frameworks, and doubts on whether these were “delivering on desired objectives”.

The government said that its work on adapting the International Sustainability Standards Board (ISSB) reporting standards, sustainability assurance and delivering on a commitment to implement 1.5C-aligned transition planning requirements “demonstrate that we are working in partnership with industry to deliver on our plans to make the UK a global hub for green and transition finance activity”.

The UK announced market consultations on all three topics last month.

EU experience and transition plans

The government said that challenges faced by the EU in making its own taxonomy workable “clearly had a heavy influence on the responses”, with “a large number of submissions” citing concerns with the framework.

The document added that “international interoperability” was a clear priority for any taxonomy but that previous work by the GTAG “ highlighted how difficult this balance would be to achieve”.

Around two thirds of respondents said they wanted any UK taxonomy to be aligned with the EU.

More broadly, the introduction of transition plan requirements emerged as a priority for respondents to the consultation, with a third saying that transition plans and a host of other policies would be “more impactful” in achieving taxonomy objectives of channelling investment and tackling greenwashing.

Some respondents noted that transition plans could help account for transitioning activities, which would be more challenging to integrate into a typical taxonomy classification due to its “binary nature”.

But integrating a traffic light system to allow for transition activities, as per the Singapore and ASEAN taxonomies, would “require further consideration” and “result in significant divergence from the EU Taxonomy structure”, said the government.

Respondents also noted the costs required to develop a taxonomy and “questioned whether that would impact resourcing of other sustainable finance policies”.

Submissions to the consultation stated support for sector-specific decarbonisation roadmaps, as well as “real economy policies and economic incentives” including new regulation, grant schemes or taxation changes.

The government has said that it will support “the growth and integrity of the transition finance market”, voluntary carbon and nature markets, and table legislation to regulate ESG rating providers later this year as part of its financial sector growth strategy.

UKSIF’s head of policy and regulatory affairs Oscar Warwick Thompson said the decision to drop the UK taxonomy was “disappointing” but welcomed the government’s support for climate transition plans and UK sustainability reporting standards.