The development of taxonomies as a common language to classify economic acitivities and assess how sustainable they are.
“The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role helping the EU scale up sustainable investment and implement the European green deal. The EU taxonomy would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.” (as described by the EU Commission).
China and the EU are expected to publish the “Common Taxonomy” by year-end, as reported by Asian media last week. PBOC (People’s Bank of China) deputy governor Chen Yulu had reportedly said that the first set of common classification standards for sustainable finance, based on both Chinese and European standards, will be released by year-end. A common taxonomy would benefit market participants in both jurisdictions and avoid the cost of double certifications. The issuance of cross-border investment products will also be more feasible.
Although the common taxonomy of EU and China will be the most important globally, a number of other countries and jurisdictions are working on taxonomy projects as described by FoSDA – Future of Sustainable Data Alliance. Some of the most important taxonomy developments are the following:
Japan: Green Bond Guidelines in 2017 (updated 2020), Basic Guidelines on Transition Finance (2021), Roadmap Taskforce to formulate sector-specific roadmaps
Malaysia: principles-based taxonomy with a focus on climate mitigation and adaption
Mongolia: taxonomy modified on the Chinese Green Bond Endorsed Project Catalogue
Russia: taxonomy developed by the state development bank (VEB), drawing on both the EU and Chinese taxonomies
South Africa: draft taxonomy drawing on the EU taxonomy
South Korea: draft taxonomy closely aligned to the EU Taxonomy in objectives and structure
ASEAN: set up an ASEAN Taxonomy Board to develop an ASEAN Taxonomy, expected to be announced in November 2021
Bangladesh: taxonomy mirroring the contents of the EUR Taxonomy.
Canada: expert group of the Canadian Standards Association, developing a “transitions” focused taxonomy, a new Sustainable Finance Action Council will develop a taxonomy
Chile: roadmap for taxonomy developed publised in 2021
Colombia: follows the EU Taxonomy
Dominican Republic: developing a taxonomy
India: taxonomy, initially with a focus on climate change mitigation and adaptation
Indonesia: national task force to formulate a taxonomy, two categories: “green” and “towards green”
Kazakhstan: taxonomy being developed and possibly to be published in late 2021
New Zealand: taxonomy developed based on the EU taxonomy
Philippines: green inter-agency taskforce with securities and exchange commission and the central bank
Singapore: consultation paper, reference to EU taxonomy
Thailand: taxonomy addressing local needs while also aligning international developments
United Kingcom: City of London’s Green Finance Institute, taxonomy broadly in line with the EU Taxonomy
Vietnam: taxonomy expected to be aligned with the EU Taxonomy
Mexico: discussing a Mexican taxonomy
Sri Lanka: taxonomy modelled on the Chinese and EU taxonomies
Multinational companies and investors in these companies will have to consider all taxonomies where they operate.
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