Taxonomy

151.  Investors and firms that are seeking to invest in and drive the transition need to understand which activities in the economy are aligned with the transition, and which ones are not, to be able to allocate their capital accordingly. While a growing number of products, both financial and non-financial, are marketed as "green", there is no accepted definition of which economic activities count as supporting climate objectives. For that they require common definitions, for example in the form of a taxonomy.

152.  In 2021, the UK announced work to develop a UK Green Taxonomy, which focuses on those activities and investment options that are already sustainable. It is important for the UK government to provide clarity and implement a coherent green taxonomy at the earliest possibility, delivering on its previous commitment. While investment in green assets is important, the transition, and finance to support that transition, needs to happen across the entire economy, including the decarbonisation of economic activities that have a high-carbon footprint to start with. To ensure government facilitates sufficient investment in transition economic activity, investors need information on transition pathways to put transition plans into context, as well as common categories and definitions on what economic activities are aligned with the transition to net zero. Government should consider the appropriateness of a transition taxonomy (alongside a green taxonomy) that is simple and proportionate; and work with international partners to ensure the UK approach is interoperable and harmonised with others' approaches.