The UK government needs to ensure it engages with the investment industry to create an effective green taxonomy, an industry expert has said.
Joshua Kendall, head of responsible investment research & stewardship at Insight Investment (part of BNY Mellon IM), told FTAdviser the EU's version of a green taxonomy was overly complicated, and the UK should look to create a more simplified version of the guidance.
“I think it's unfortunate that the EU has gone down a path that hasn't been so inclusive. One of the challenges from a fixed-income perspective is that the taxonomy itself has firstly been done behind closed doors, it hasn't been very transparent," he said.
“And what ended up happening is very, very complicated outputs that the investment industry at the moment isn't going to be able to put into practice.
“So you can come out with the best system in the world [with] the best proposals, but if nobody can use it, because it's hundreds of pages long, what's the value in?”
The EU's taxonomy, which was initially published last summer, establishes a framework to ensure economic activity in the region meets conditions that qualify as environmentally sustainable.
This includes sustainability disclosures in the financial sector, known as SFDR, which came into effect in March this year.
The UK decided not to implement the EU’s regulation in legislation since it left the bloc at the beginning of this year, instead choosing to work on its own taxonomy.
Last week (June 9), the UK government announced it had created a working group to help to create the green taxonomy in the UK.
The Green Technical Advisory Group (GTAG) will oversee the delivery of the green taxonomy in the UK, giving advice to the government on developing the framework, supporting investors, consumers and businesses to make green financial decisions and will clamp down on greenwashing.
Kendall said he hoped the working group would consider not just what should be included in the framework itself, but how it can be effectively used.
“How can it be flexible to align with the realities that investors face, irrespective of their asset class?” he said.
“If it could do that, then I believe it could be a very useful framework for how we can have wider discussions with clients on what portfolios could look like.”
He added there was a fundamental issue with the data in the UK, which could prove to be a stumbling block.
“The fund management industry struggles to integrate basic data, and the technology is a very expensive investment.
“So [global taxonomy] alignment would be ideal. What would be more ideal is if the EU and the UK and the US would work together on a framework, but I'm not going to hold my breath.”
He said ultimately he was optimistic about the UK’s approach so far.
“I believe that so far the UK approach to sustainable finance has been very pragmatic and cognisant of the challenges that investors face [and what] investors ultimately need.”
