• The UK government has put its decision on introducing a green taxonomy on ice.
• Instead, they have shifted their focus to other sustainability policies.
• On a mission to make the UK a global centre for green finance and transition finance.

The UK government has decided not to introduce a green taxonomy, citing inefficiency.

Green taxonomy is a system that defines which investments or financial activities are environmentally sustainable and what comes under the label "green". However, the government has recently said that such a taxonomy would not deliver on the green transition and is not the most effective tool in this context.

The reaction comes on the back of a consultation process and industry feedback, which have yielded mixed opinions. Although some investment groups supported the system, the government sees a UK-specific taxonomy as adding no value beyond existing sustainability policies.

Read More: UK Firm Turns Captured CO2 into Materials for Roads, Buildings

In the meantime, government officials are pivoting to other green finance policies that are likely to have more impact. In June, it held three consultations on sustainability reporting, signalling that it is not backing off from green finance but wants it to progress through other means.

Emma Reynolds, the economic secretary to the Treasury, said that the government is working in tandem with the financial industry to make the nation a global hub for green and transition finance.

Meanwhile, she also said, "After careful consideration, the government has concluded that a UK Taxonomy would not be the most effective tool to deliver the green transition and should not be part of our sustainable finance framework."

The decision on the taxonomy came as part of a broader "growth and competitiveness" plan presented in Leeds for the financial services sector. The plan is also part of the UK’s modern industrial strategy and is intended to make the UK the number one destination for financial services by 2035.

UK government’s priorities in finance

For asset management, the government outlines three goals: to prioritise portfolio management in policymaking; to make the nation a global leader in private market asset management; and to have a “future-proof” regulatory system in sync with innovation.

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And finally, the government wants to encourage more retail investment, meaning it needs ordinary people to invest more of their savings than before, as the UK currently has the lowest level of retail investment among G7 countries.

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