Shaping Sustainable Finance: UK Green Taxonomy and Stewardship Code Consultations Launched

As sustainability continues to be at the forefront of the UK regulatory agenda, two key consultations were launched in November, for the UK Green Taxonomy and the updated UK Stewardship Code. The timing is interesting, with both broadly sharing goals of enhancing sustainable finance and ensuring that capital allocation contributes to long-term environmental, social, and economic objectives.

In a nutshell:

The UK Green Taxonomy consultation seeks to establish a classification system for sustainable economic activities, aligning with the government’s net-zero and sustainability goals. By providing a framework to attract private investment into green sectors and prevent greenwashing, the taxonomy aims to:

• drive the UK’s transition to a climate-resilient, nature-positive economy.

• enhance transparency in financial product disclosures.

• integrate into broader government climate policies.

Key design considerations of the consultation include international interoperability (i.e. ensuring cross border alignment and compatibility), prioritisation of environmental objectives, and adherence to the “Do No Significant Harm” principle (a key principle under the EU Taxonomy Regulation). The consultation also addresses governance for regular updates and implications for businesses, such as aligning activities with taxonomy criteria to access green finance. The consultation aims to determine the effectiveness of implementing the taxonomy and how best to do this (learning lessons from its implementation in other jurisdictions). It closes on 6 February 2025, find it here.

The UK Stewardship Code is a framework introduced by the Financial Reporting Council (FRC) that sets principles for asset managers, asset owners, and service providers to promote effective stewardship of investments. It is particularly relevant for firms regulated by the Financial Conduct Authority (FCA) that managing investments for professional clients. These firms are subject to COBS 2.2.3 which requires them to disclose the nature of their commitment to the Code.

The consultation launched this month by the Financial Reporting Council (FRC) aims to revise the Code to enhance transparency and the quality of stewardship practices. Proposed updates include:

• a clearer definition of stewardship.

• emphasising long-term sustainable value creation for clients, beneficiaries, and broader societal benefits.

• streamlined reporting into policy disclosures and annual activity reports.

• The reduction of administrative burdens while still maintaining transparency.

The Code’s revised Principles in the consultation aim to cater to diverse roles in the investment chain and encourage more nuanced, outcomes-focused narratives across asset classes. The updated Code also seeks to align with global frameworks: balancing flexibility with UK-specific standards. The consultation runs until 19 February 2025, with implementation set for 2026, find it here.

Conclusion

It’s worth considering what drives both: the Green Taxonomy aims to establish the “what” of sustainability (i.e. defining sustainable activities), while the Stewardship Code emphasises the “how” (managing and reporting on investments responsibly). Together they aim to create a robust framework to channel capital toward sustainable outcomes and enhance transparency and accountability in the financial sector on green matters.

We will be keeping an eye on how these two consultations progress and what comes out upon their conclusion. If you would like to contribute to either, click the links above and follow the instructions. If you’d like to discuss either and how we can help, do get in touch.