Usability issues experienced with DNSH in the EU taxonomy, include inconsistent and ambiguous criteria, lack of clarity on definitions and inflexible disclosure. However, the UK can improve this given its “second mover advantage”.

The Government’s Green Technical Advisory Group (GTAG) has set out recommendations to streamline usability and ensure ‘do no significant harm’ (DNSH) assessments can be effectively placed in the UK taxonomy.

The UK taxonomy is expected to comprise two main elements for alignment. First, making a significant contribution to one of the six environmental objectives. Second, to do no significant harm to the other five environmental objectives. The principle of DNSH is a key component which ensures that economic activities support one environmental objective and do not have an adverse impact on others.

In its latest analysis, GTAG sets out the challenges and recommends revisions and streamlining be undertaken. Further, GTAG also recommends that the Government should move beyond the binary approach to DNSH reporting that is currently the norm and adopt an approach to reporting that would enable companies with activities that are not fully taxonomy aligned, but meet the substantial contribution and some DNSH criteria, to disclose the extent to which they meet the DNSH criteria.

GTAG’s advice is that by adopting a revised approach to drafting DNSH criteria, levels of identifiable taxonomy alignment can be improved and enable the UK to set a new approach, reinforcing the UK’s role as a world leader in green finance.

There has been a near global adoption of DNSH in taxonomies under development internationally, and the Government should socialise this new approach to DNSH through its membership of the International Platform on Sustainable Finance and the International Organization of Securities Commissions. This will put the UK at the forefront of the drive toward global Green Taxonomy harmonisation.

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