This briefing is provided in collaboration with BRC Associate Member, Grant Thornton.
From November 2024 to February 2025, the Government hosted a consultation seeking views on the benefits of introducing a UK Green Taxonomy as part of the wider sustainable finance landscape in the UK.
The introduction of a green taxonomy would be a significant development for UK retailers, with large implications for sustainability targets, strategies and action, and supporting financial and investment decisions. This recent consultation has signalled that it is more important than ever for businesses in the UK to start considering how engagement on sustainability – on climate and net zero, as well as nature and the circular economy – may increasingly impact how finance is unlocked and retained in the future.
This briefing, produced in collaboration with Grant Thornton, provides an overview of the recent consultation, considering what a UK Green Taxonomy could mean for retailer action on sustainability and what your business can do now to start preparing.
What is a green taxonomy and why is it important?
A green taxonomy is a classification tool used by investors, companies and policymakers to establish a common framework that defines which individual economic activities of an organisation align with the particular environmental goals and sustainability objectives set out in the taxonomy.
For businesses and retailers in particular, a green taxonomy framework can help to consider their own activities against specific environmental criteria and enable the business to determine the extent to which it is aligned to the taxonomy.
Importantly, this allows businesses to demonstrate to their consumers, employees and investors which of their activities supports the wider sustainability goals of the company and the country in which they operate, and highlight where future efforts to improve action on sustainability and mitigate potential greenwashing claims are needed most. This information can in turn be used by lenders and investors to determine how taxonomy aligned a company is, which may influence investment decisions regarding the business.
What is the UK Green Taxonomy consultation?
The UK Government, in November 2024, released a consultation to assess if introducing a taxonomy would channel additional private funds towards the government’s climate ambitions, support companies to meet their sustainability goals, and mitigate greenwashing. The consultation invited views on several aspects of the taxonomy, including:
- The value and use cases.
- The design of the taxonomy, including definition of environmental objectives.
- The additional value of a taxonomy within the current financial and sustainability policy landscape.
- How best to cover transitional activities (i.e., actions that are not necessarily low carbon but which are needed to move a business to a low-carbon future).
What can you do to start preparing?
If a UK Green Taxonomy is introduced in future, which it is expected to be, we would expect a cross-functional team of sustainability managers, supply chain experts, finance teams and senior leadership within retail businesses to collaborate when applying the taxonomy within their businesses. They would need to engage a host of teams across the organisation, depending on the specific action they may take. For example, when considering lower-carbon logistics decisions, we would expect involvement from the product, packaging and logistics teams.
Whilst we await more clarity on the technical detail of the UK Green Taxonomy, retailers could begin to consider the following areas to get ahead of the curve in their preparations:
- How are you contributing to the UK's environmental objectives? For example, considering end of life and introducing circularity in your offering, using less packaging, making a product more energy efficient, extending the lifecycle and improving the durability of products etc.
- How does your capital expenditure and investment support the transition to a low carbon economy? Example, through investing in energy efficient outlets or electrification of your distribution fleet.
- Can you support your claims with data? The need for robust data is high, and by ensuring data is transparent - and externally-assured - retailers can have more clarity on their current position, the impact of any actions they take, and be realistic about the journey they need to go on to reach their sustainability goals. Retailers that prioritise robust and transparent reporting practices and effectively communicate their environmental impact are far more likely to build investor confidence.
- Have you set meaningful Scope 3 targets? Most retail emissions come from sources ‘upstream’ and ‘downstream’ of your business (Scope 3). Sustainable sourcing and manufacturing is fundamental to reducing Scope 3 emissions for retailers. Products can take less carbon to produce, use and dispose of, if for example they are transported shorter distances, avoid carbon-intensive roadway transport, are certified with sustainable standards, have minimal packaging etc.
- Have you completed a logistics and transportation audit? Innovation in global shipping is a cornerstone of emissions reductions across industries. The shift towards omnichannel shopping over the past decade has led to fragmented delivery services, but new innovations are giving retailers the opportunity to reduce emissions. Through use of technology automation and AI, retailers can optimise fulfilment processes, maximize route efficiency and reduce emissions.
- How strong are your foundations? By ensuring they have good governance regarding ESG, consider linking executive remuneration with sustainability targets, and delivering consistent, data-led sustainability reporting, retailers are far more likely to succeed in reaching climate goals.
What are the wider implications for a UK Green Taxonomy?
A UK-wide green taxonomy will be a useful tool to highlight greenwashing claims, giving both investors and consumers’ confidence that a business is committed to the climate transition and sustainability goals without making claims that are not evidence based. A taxonomy could also help attract capital towards business projects that can clearly demonstrate positive environmental benefits against the taxonomy.
With several other countries already introducing taxonomies of their own, businesses should consider the potential burden of analysing activities and reporting against multiple taxonomies. The UK Government will need to ensure alignment with other taxonomies, including the EU taxonomy, to avoid divergent guidelines and ensure effective implementation, especially for retailers with international operations.
This consultation comes at a crucial junction for the UK’s journey towards its Net Zero goals and overall ambition to become an international hub for climate transition finance. It is likely that we will see some additional consultations in the coming months, regarding the exposure draft of the UK Sustainability Reporting Standards, the best way to take forward transition plans, and aspects of Voluntary Carbon and Nature Markets.
Developments in the US and EU will also need to be kept in mind. These markets may move in the opposite direction to what we have seen in the last few years, with a dilution of green ambition and action.
However, the range of sustainability legislation on the horizon, including the UK Green Taxonomy, highlights that sustainability considerations continue to be increasingly important for businesses: to unlock future growth, achieve key targets on climate and nature, maintain reputations in the eyes of investors and customers alike.
