Hearts & Minds: Backtrack on green claims clarity presents a new challenge for comms

The regulatory goalposts keep shifting in ESG. The latest change is the announcement from the UK government that it is ditching plans to release a ‘taxonomy’ for guiding companies and investors on what is a green investment. It is another sign of governments rowing back or slowing in introducing sustainability regulatory reporting requirements for companies.

The new system had its enemies - it was criticised as likely to prove too burdensome to apply in practice. But it would also serve a purpose in enabling companies to meet the expectations of green investors. Governments may be stalling but there are plenty of the latter. They want to know if an activity will help an economy meet its net zero targets. The idea behind the taxonomy was to make that decision easier, to create a standard classification that would drive investment towards green projects.

The UK decision has been on the cards for some time. Plans to develop a taxonomy were mooted in 2020. But work on the new system was paused in December 2022, with the then government saying it was a too complex exercise.

Now the government has concluded the taxonomy ‘would not be the most effective tool to deliver the green transition and should not be part of our sustainable finance framework.’ The UK is not alone – the EU is reviewing its own sustainability reporting rules for companies to cut red tape and boost competitiveness.

This means companies can no longer rely on a formal domestic benchmark to support their green claims. Instead, they will need to reference international frameworks like the ISSB, TCFD, TNFD or EU taxonomy (if relevant).

Without clear criteria, there is a greater risk of companies being caught out, by making sustainability claims that regulators or stakeholders can challenge. Communicators will therefore need to work harder to substantiate what qualifies as ‘green’ or ‘sustainable.’

It is important to emphasise: the proposed new taxonomy may have been taken away but the authorities remain heavily committed to tackling misleading assertions. Companies still face that reputational nightmare of being pilloried for saying they’re doing something when they’re not.

The move is likely to make the task of investors more difficult. Without a taxonomy, they may struggle to compare companies on sustainability grounds. Strong data and clarity remain as essential as ever but companies need to be presenting credible, well-evidenced narratives. Which is where the comms teams come in.

Chris Blackhurst is one of the UK’s foremost business journalists. He was previously Editor of The Independent and City Editor of the Evening Standard.