UK Scraps Green Taxonomy From Finance Framework

In a dramatic change in its sustainable finance agenda, the UK government dropped its plans to create and publish a Green Taxonomy—its suggested system of classification to tag and channel environmentally friendly economic activity. This followed on from an intensive public consultation that uncovered limited support for the plans and increased concern regarding its useability and feasibility and practicality and implementation issues.

The policy has been released by HM Treasury on 15 July 2025 and is a U-turn of a policy first launched in 2020 by then-Chancellor Rishi Sunak. The UK Green Taxonomy has always been conceived as a building block tool in the nation's sustainable finance landscape. The tool was intended to establish a standard way of classifying economic activities by how environmentally sustainable they are, with the goal of enhancing transparency, impacting capital flows towards more sustainable investments, and pushing back against greenwashing.

Nonetheless, after the outcomes of a consultation initiated in November 2024, the government decided that maintaining the taxonomy would not be the best approach to meeting the UK's climate and sustainability objectives. From the consultation report, 45% of the respondents felt positively towards the creation of a UK taxonomy, while 55% gave mixed or negative reactions. The majority of the typical problems were centered on the difficulties of applying a taxonomy, particularly bearing in mind different experiences in applying comparable frameworks elsewhere, including the European Union.

The consultation also ensured that the majority of stakeholders shared concerns over the capacity of the taxonomy to achieve its fundamental goals, such as redirecting investment into green activities and deterring greenwashing. A little more than one-third of respondents advised that such objectives might perhaps be better met by other policy levers, such as the UK's new Sustainability Reporting Standards (UK SRS), transition plans by companies, and roadmaps by sectors. Some mentioned economic incentives and general measures of the real economy as probably more likely to succeed than the creation of a complicated and labor-intensive classification system.

These criticisms were answered by HM Treasury in its formal response as follows:

"After reflection on the responses to consultation, the government has decided that a UK taxonomy would not be an optimal instrument to drive the green transition and ought not to be included within our sustainable finance framework. Although the government's ambition to remain a global leader does not shift, the responses to consultation indicated clearly that other actions were of greater importance so as to drive investment into the net zero transition and prevent greenwashing."

The action is contrary to the direction taken by most other nations either in the process of developing or who already have sustainable finance taxonomies. Some nations that have adopted taxonomy frameworks as support for their climate finance policy include the EU, Australia, Singapore, Hong Kong, Canada, and India. The EU itself, for example, has just made a significant simplification of its taxonomy into something more user-friendly and helpful. The UK consultation paper reports that there are around 20 jurisdictions with a government-backed taxonomy that is live today, and another 30 or so in the pipeline to build such frameworks.

Even though the government pulled out of creating a taxonomy, it reaffirmed its backing for sustainable finance and climate goals. The Treasury highlighted that it remains supportive of other measures like the UK SRS, transition plans, and investments in decarbonization and economic change.

But the move has been condemned by green finance activists and professional associations. Oscar Warwick Thompson, the UKSIF's Head of Policy and Regulatory Affairs, was appalled at the government's about-face over the taxonomy proposal.

It is sad that the government has come to the conclusion that a green taxonomy finds no space in the UK sustainable finance framework. We'd now like to see timely issuance of commitments for transition plans and the sustainability reporting standards," he said.

While others who are interested are comforted by not having to bear the compliance and administrative costs of a taxonomy system, others caution that without an easy-cut regime of classification, the UK's onward march to bring financial flows into line with its climate goals can be brought to a standstill. Others regarded the taxonomy as a crucial step towards comparability with other markets, most notably the EU, where the taxonomy is a flagship regulation for sustainable finance.

The shift to government now shines a light on other columns of its green finance strategy. As the UK SRS and transition plans take lead roles, regulators and financial markets are set to concentrate on enhancing disclosure standards and shaping incentives for financing low-carbon products.

With the UK re-shaping its sustainable finance plan, the success of the new plan will not be greater than the clarity, ambition, and implementation of the alternative measures that are now given priority.