UK Government Publishes An Update On The UK Green Taxonomy And A Consultation On Bringing ESG Ratings Providers Within The Regulated Perimeter

• Law Firm: Herbert Smith Freehills
• Subject Matter: Finance and Banking, Environment, Financial Services, Environmental Law
• Author: Mr Clive Cunningham, Marina Reason, Kelesi Blundell and Ioannis Asimakopoulos
• Published date: 14 April 2023

On 30 March 2023, the UK Government published (i) its updated Green Finance Strategy (Strategy) and (ii) a consultation on the future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers (Consultation). Both publications are part of a wider set of ESG-related publications such as the Powering Up Britain - Net Zero Growth Plan and Energy Security Plan (which we cover in more detail here) and the more recent consultation on addressing carbon leakage risk to support decarbonisation.

In summary:

• the Consultation introduces the new regime for ESG ratings providers as signposted in the Edinburgh Reforms unveiled by the Chancellor of the Exchequer, Jeremy Hunt, in December 2022. The Consultation will close on 30 June 2023 and
  
  
• the Strategy outlines the Government's policy for mitigating climate risk and how it intends to pursue its ambition to become the world's first Net Zero-aligned Financial Centre The key aspect of the Strategy is the insights as to next steps on the long-awaited UK Green Taxonomy. A consultation on this is expected in the Autumn of 2023.

More details below.

The Strategy

The Strategy is an update to the UK's 2019 Green Finance Strategy - some of the key updates from a financial regulatory perspective include:

• delivering a UK Green Taxonomy. As a reminder of the state of play of the UK Green Taxonomy, the EU Taxonomy was onshored in the UK as part of the Brexit process but the EU Level 2 (technical screening criteria - which was not yet implemented in the EU) was not onshored. The UK Government was supposed to adopt UK technical screening criteria by 1 Jan 2023. However, on 14th December the Government indicated that the EU Taxonomy as onshored in the UK will be repealed by the Financial Services and Markets Bill (FMSB) along with the associated technical screening criteria requirements. The Government indicated that it would provide a further update on the UK Green Taxonomy as part of its Green Finance Strategy, which indeed it has. In the meantime, the Green Technical Advisory Group (GTAG) has been feeding into the Government's policy on the Taxonomy and published advice on the development of this on 1 October 2022.
  
  The Strategy does not provide a huge amount of insight as to the UK Green Taxonomy, but it does indicate that:
  
  
  • the Government is committed to delivering this;
  • it will include nuclear technology;
  • the regime will be proportionate so that it does not place an undue burden on companies whose...