The UK government has dropped a flagship plan to introduce a green taxonomy — a framework designed to standardise carbon emissions calculations and prevent companies from exaggerating their environmental credentials.
The decision comes after a public consultation into the proposed policy, which would have required companies and investment funds to be more transparent and rigorous when making environmental claims. The move was widely seen by campaigners and sustainable investment groups as a critical step in fighting “greenwashing” — the practice of overstating environmental performance to appeal to eco-conscious investors and consumers.
In a statement, the Treasury said: “After careful consideration of the responses, 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.”
It added that other regulatory measures are now a higher priority for accelerating private sector investment into the transition to net zero and that the taxonomy would have offered limited additional benefit over existing frameworks.
The decision has prompted criticism from the sustainable investment community. The UK Sustainable Investment and Finance Association (UKSIF), which represents 300 members managing £19 trillion in assets, described the move as “disappointing”.
According to the Treasury, while 45% of the 150 consultation responses supported the proposal, 55% were mixed or negative. Critics pointed to practical challenges with implementation and questioned whether the taxonomy would add significant value when compared to existing EU and global frameworks.
Nevertheless, campaigners say the abandonment of the plan leaves a gap in the UK’s green finance strategy. Unlike in the EU, where a taxonomy is already in use to determine which economic activities can be labelled as environmentally sustainable, the UK now lacks a unified classification system. As a result, companies and fund managers remain largely free to market investments as “green” or “sustainable” without a consistent set of criteria to verify those claims.
“There was limited evidence of a compelling use case for a specific UK taxonomy that would achieve outcomes which could not be otherwise achieved using existing taxonomies or market frameworks,” the Treasury concluded.
Separate rules from the Financial Conduct Authority (FCA) introduced earlier this year — including tighter rules around the naming and labelling of ESG funds — are already in place to tackle misleading green investment claims. The Competition and Markets Authority (CMA) and Advertising Standards Authority (ASA) have also taken action to challenge misleading sustainability claims by firms.
Some large companies operating in the UK continue to voluntarily use the EU’s taxonomy to guide their reporting and ESG disclosures. However, the lack of a UK-specific framework could now create fragmentation and confusion among investors and consumers.
The move comes at a time when global scrutiny of green finance is intensifying. Critics argue that without a clear and credible taxonomy, the UK risks falling behind in ensuring that sustainable investments deliver real-world environmental impact.
Environmental groups and finance experts are now calling for renewed efforts to ensure that other tools in the sustainable finance framework are sufficiently robust to deter greenwashing and promote transparency.