UK government advisors have published their recommendations for how the country’s green taxonomy should approach the concept of ‘Do No Significant Harm’ (DNSH).
Invented by the European Commission, DNSH seeks to ensure that business activities contributing to one environmental objective don’t materially undermine others. For example, if an investment supports climate mitigation, but significantly harms biodiversity in the process, it would be excluded from being eligible under the taxonomy.
Investors have pushed back particularly hard against this dimension of the EU regulation because it is complicated to assess, and screens out most investments. Research from 2021 showed the FTSE Global All Cap Index universe had around 6% taxonomy eligibility, but this fell to 0.4% if applying DNSH.
The UK’s Green Technical Advisory Group (GTAG) has been revisiting the filter as part of its work on what a national taxonomy should look like.
The group’s 23 members include Faith Ward, chief responsible investment officer at Brunel Pension Partnership, and Elizabeth Gillam, head of public policy at Invesco.
Today, it proposed a “streamlined” version of DNSH, saying: “Requirements are currently difficult to navigate, given that there are more than 700 individual DNSH criteria.” It wants to reduce this number by combining similar criteria without “weakening the scientific basis or the overall ambition” of the UK framework.
GTAG said the government should start by explaining “the purpose of, approach to, and definition of DNSH” under its taxonomy, to help investors, and to make it easier to make different jurisdictions’ taxonomies compatible.
“There has been a near global adoption of DNSH in taxonomies under development internationally,” the recommendations state.
“To promote international interoperability, proportionality and usability of taxonomies more generally, [the UK government] should socialise this new approach to DNSH through its membership of the International Platform on Sustainable Finance and the International Organization of Securities Commissions.
“This will put the UK at the forefront of the drive toward global green taxonomy harmonisation.”
The recommendations come the same week that UK prime minister Rishi Sunak torpedoed the UK’s reputation as a global climate leader by announcing plans to “max out” opportunities for oil exploration in the North Sea, granting more than 100 new drilling licenses.
He has also been a loud critic of rules to discourage the use of petrol vehicles in London, saying this week that he was on the side of motorists.
A consultation on the UK’s green taxonomy is slated for this autumn.
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