On January 28, 2021, Singapore’s Green Finance Industry Taskforce (GFIT) launched a consultation on a proposed taxonomy (the “Taxonomy“) for financial institutions to identify green and transitional activities. The Taxonomy is intended to provide a common framework for classification upon which financial products and services can be built and combat greenwashing by setting out definitive criteria for greenness in Singapore.
The Taxonomy consultation builds upon Singapore’s exemplary efforts to regulate and develop its green finance markets, including the Monetary Authority of Singapore’s recently issued Environmental Risk Guidelines for asset managers, banks and insurers, which we discuss in our Legal Update at MayerBrown.com.
In this Blog Post, we discuss the Taxonomy and steps that other jurisdictions in Asia have taken to implement their own green taxonomies.
The Taxonomy is being developed by the GFIT, an industry-led initiative convened by the Monetary Authority of Singapore to accelerate green finance in Singapore. In addition to developing the Taxonomy, the GFIT is tasked with enhancing the environmental risk practices of financial institutions, improving disclosures and fostering green finance solutions. This industry-led approach is likely to increase uptake of the Taxonomy by addressing the views and concerns of financial institutions in the Taxonomy itself, before it becomes effective.
The consultation paper sets out the overall framework for the Taxonomy and requests feedback on a variety of specific and general questions. The proposed Taxonomy would identify economic sectors that have the potential to make a substantial contribution to climate change mitigation or adaptation in Southeast Asia, and then set out criteria for economic activities within those sectors to qualify as environmentally sustainable. Initially, the sectors of focus include:
- Agriculture and Forestry/Land Use;
- Construction/Real Estate;
- Transportation and Fuel;
- Energy (including upsteam);
- Information and Communications Technology;
- Waste/Circular Economy; and
- Carbon Capture and Sequestration.
For an activity within these sectors to qualify as environmentally sustainable, it must contribute to one or more of four environmental objectives: climate change mitigation, climate change adaptation, protecting biodiversity and promoting resource resilience. In addition, the activity must not:
- significantly harm any of the four environmental objectives;
- negatively impact communities’ social and economic well-being (unless trade-offs can be justified in the long run); or
- breach local laws and regulations.
Importantly, the GFIT recognizes that the Taxonomy’s usability depends on its inter-operability with other taxonomies around the world, reducing the risk of problematic regulatory fragmentation as other jurisdictions develop their own taxonomies. While the consultation paper does not include the GFIT’s analysis of specific economic activities within the identified sectors, the proposed framework generally aligns with the approach adopted by the EU in the Taxonomy Regulation, which could streamline compliance for global financial institutions already adopting the EU approach. The GFIT has helpfully compared the proposed Taxonomy with the EU approach in the consultation paper itself.
In addition to the EU, the consultation paper compares the proposed Taxonomy with efforts in Malaysia and China. In Malaysia, Bank Negara Malaysia (BNM) issued a Climate Change and Principle-based Taxonomy and Discussion Paper for a high-level climate-focused taxonomy that will reportedly be finalized later this year. In China, the Chinese National Development and Reform Commission maintains a Green Industry Guiding Catalogue that identifies green industries for the purpose of promoting investment. These initiatives are discussed in more detail in the consultation paper.
Elsewhere in Asia, Japan is currently developing a transition taxonomy and Hong Kong recently announced its intention to develop a sustainability taxonomy by mid-2021. We discuss the Hong Kong announcement in our Legal Update at MayerBrown.com. As these and other taxonomy-related efforts continue, market participants in Asia will have plenty to look forward to in this space throughout 2021.
The Taxonomy consultation closes 11 March 2021.