The UK government has initiated a consultation on the potential “value case” for a green taxonomy as part of a broader package of measures aimed at advancing sustainable finance and enhancing the financial services sector. Chancellor Rachel Reeves announced the consultation during her Mansion House speech, which included several initiatives to bolster environmental, social, and governance (ESG) standards and transition finance.
The green taxonomy consultation, open until February, seeks input on how a UK-specific taxonomy could support channeling capital towards sustainable goals, combat greenwashing, and aid in transition finance. Respondents are asked to consider best practices from other jurisdictions, sectoral inclusions, the design of “Do No Significant Harm” criteria, and interoperability with existing frameworks.
This initiative comes after repeated delays, with the UK taxonomy originally scheduled for implementation at the start of 2023. The consultation reflects a renewed effort to clarify its purpose and structure in light of previous uncertainties under the previous Conservative government and post-election ambiguities.
As part of the package, the government also published draft legislation empowering the Financial Conduct Authority (FCA) to regulate ESG ratings providers. This move follows a scoping consultation that drew 94 written responses, with near-universal support for regulation but concerns about the potential impact on start-ups and competition.
Two-thirds of respondents favoured a less burdensome regime for smaller providers to foster competition, and the FCA will evaluate the regulation’s cost-benefit implications during the drafting process.
Additionally, the government introduced new “integrity principles” for voluntary carbon and nature markets and pledged to consult on mandatory reporting under the UK’s sustainability standards.
Transition finance featured prominently in Reeves’ speech, including plans to establish a Transition Finance Council in partnership with the City of London Corporation. The initiative stems from recommendations in the Transition Finance Market Review.
The government also committed to consulting in 2025 on implementing its manifesto pledge to require transition plans. Furthermore, the Bank of England’s Monetary Policy Committee will now prioritise the net-zero transition in its economic strategy, while sustainable finance will regain prominence in the Financial Policy Committee’s secondary objectives.
Sustainable finance leaders have welcomed the measures. Will Martindale, managing director of consultancy Canbury, praised the package as a significant step towards reasserting the UK’s leadership in sustainable finance, citing mandatory ISSB disclosures and the adoption of transition plans as highlights.
UK Sustainable Investment and Finance Association (UKSIF) CEO James Alexander called the package “strong” but noted some disappointments, particularly regarding delays in the green taxonomy.
Reeves also unveiled plans to consolidate the UK’s Local Government Pension Schemes into eight “mega-funds,” modeled after the Canadian and Australian pension systems. The government aims to encourage these funds to invest more in infrastructure and “productive finance” and is considering setting targets for local economy investments.
Defined contribution (DC) pension providers are also being encouraged to consolidate into larger funds to boost efficiency and investment potential.
